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Author: 


Conyngton,  Thomas 


Title: 


Business  law 


2v 


Place: 


New  York 

Date: 

1920 


MASTER   NEGATIVE  « 


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I 


Conyngton,  Thomas. 

Business  law;  a  workin^^  manual  of  evcry-day  law,  by 
Tlionuis  Conyn^ton  ...  iM  od.  Xew  ^'ork.  The  Ronald 
pross  ronipaTiy,  1920. 

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LIBRARY 


School  of  Business 


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\ 


Business  Law 


A  Working  Manual  of  E very-day  Law 


By 


THOMAS  CONYNGTON 

Of  the  New  York  Bar;  Author  of  "  Corporate  Organization 
and  Management,"  "  The  Modem  Corporation,"  etc. 


VOLUME  I 


SECOND  EDITION 


NEW  YORK 

THE  RONALD  PRESS  COMPANY 

1920 


Copyrigiit,  1918,  by 
The  Ronald  Pbess  Company 


Copyright,  1920,  by 
•The  Ronald  Piess  Company 


AU  RigMs  Raenti 


JL  150 


C1U\ 


V*  I. 


PREFACE 

Law  and  order  are  the  necessary  foundations  for  civilized 
life.  A  pastoral  people  with  few  possessions  needs  few  and 
simple  laws.  A  populous,  modem  state  with  complex  social, 
industrial,  and  commercial  relations  requires  intricate  and  far- 
reaching  regulations.  In  this  country  the  latter  condition 
prevails,  and  our  present  legal  system  has  not  kept  pace  with 
our  perhaps  too  rapid  progress  in  other  ways. 

Our  system  of  laws  is  an  inheritance  from  our  Anglo- 
Saxon  ancestors,  supplemented  by  written  constitutions  and 
multitudinous  legislative  enactments.  Much  of  our  law  is 
judge-made.  Like  our  forebears,  we  revere  precedents  and 
decisions  and  have  more  of  this  kind  of  law  than  we  know 
how  to  use.  We  have  our  federal  courts  and  forty-eight 
separate  state  systems,  all  grinding  out  innumerable  volumes 
of  reports.  In  consequence,  this  source  of  law  has  become 
cumbersome  and  somewhat  unmanageable.  Beyond  this  we 
are  subject  to  the  Constitution  of  the  United  States  with  its 
eighteen  amendments,  as  well  as  the  constitutions  of  our 
individual  states ;  to  the  enactments  of  Congress  and  to  those 
of  our  state  legislatures ;  to  the  ordinances  of  boards  of  alder- 
men; to  the  regulations  of  boards  of  health  and  education; 
and  to  the  orders  of  many  other  boards,  bureaus,  commissions, 
and  officials.  With  the  multiplicity  of  regulation  that  all  this 
entails,  it  requires  no  small  amount  of  care  and  study  to  avoid 
unwitting  entanglement  in  the  far-extended  meshes  of  the 

law. 

Yet  from  this  unwieldy  mass  of  law  may  be  elicited  cer- 
tain guiding  principles  that  everyone  should  know— general 

rules  that  will  guide  us  safely  past  most  of  the  difficult  places. 

**• 
lii 


i 


I  \ 


IV 


PREFACE 


Knowing  these,  it  is  possible  for  a  man  so  to  shape  his  business 
course  and  his  relations  with  his  fellows  as  to  have  little  to 
do  with  courts  or  lawyers.  Courts  and  lawyers  are  necessary 
institutions — so  are  doctors  and  hospitals— but  all  of  us  prefer 
to  avoid  both  so  far  as  possible  and  so  long  as  possible. 

It  is  the  admirable  theory  of  the  law  to  secure  right  and 
justice  to  all  men.  The  practical  application  of  the  law 
through  the  courts,  however,  does  not  always  attain  these 
ends.  Some  reasons  for  this  are  set  forth  in  the  following 
pages.  Also  suggestions  are  given  as  to  how  one  may  shape 
his  conduct  and  manage  his  affairs  in  order  to  avoid  the  more 
serious  legal  difficulties.  The  man  or  woman  who  owns  prop- 
erty, who  does  business  and  engages  in  affairs,  should  know 
the  principles  upon  which  our  law  is  based,  should  know  how 
to  apply  these  principles  to  the  more  usual  happenings,  and 
should  know  when  and  how  to  employ  "counsel  learned  in  the 
law."  The  advice  here  given  is,  as  near  as  may  be,  such 
as  would  be  given  by  a  conscientious  lawyer  who  desired  to 
keep  his  clients  out  of  the  courts,  rather  than  to  win  cases. 
All  men  should  know  some  law,  and  it  is  devoutly  to  be  hoped 
that  the  day  will  come  when  even  those  who  write  romances 
and  photo-plays  will  know  enough  law  to  avoid  the  pre- 
posterous legal  situations  that  cause  so  much  trouble  to  their 
heroes  and  heroines. 

To  better  adapt  the  book  to  the  needs  of  those  intending 
to  become  professional  accountants,  the  C.P.A.  examinations 
of  the  various  states  for  the  past  five  years  have  been  ex- 
amined and,  where  necessary,  the  text  has  been  expanded  to 
cover  all  the  more  important  questions.  Many  of  the  questions 
given  in  these  examinations  refer  purely  to  local  statutes,  and 
answers  must  be  found  in  the  laws  of  the  state  in  which  the 
examination  is  held.  In  such  cases  the  fact  has  been  indicated. 
Other  questions,  outside  the  scope  of  this  work,  are  apparently 
brought  in  by  the  examiners  for  the  purpose  of  keeping  quali- 


PREFACE  V 

fied  students  from  receiving  the  C.P.A.  degree.  This  seems 
a  hard  thing  to  say  but  The  Journal  of  Accountancy  for 
October,  1919,  expresses  editorially  the  same  opinion: 

Apparently  some  state  boards  in  the  past  have  been  chiefly 
concerned  with  an  effort  to  convince  the  public  of  their 
innate  cleverness.  They  have  presented  questions  which  it 
would  be  ridiculous  to  expect  a  candidate  to  answer  with- 
out reference  to  authorities,  and  as  a  result  they  have  ex- 
cluded many  men  fully  qualified  to  practice  as  public 
accountants.  Out  of  this  condition  has  grown  the  quite  fre- 
quent allegation  that  accountants  are  trying  to  build  up  a 
close  corporation  by  preventing  newcomers. 

To  assist  students  of  business  law,  questions  have  been 
appended  to  each  chapter.  Some  of  these  have  been  taken 
from  C.P.A.  examinations,  some  are  intended  to  provoke  in- 
quiry rather  than  direct  answers,  and  others  are  the  usual  type 
of  review  questions. 

The  author  desires  to  acknowledge  his  indebtedness  to 
Elizabeth  A.  Smart  of  the  New  York  Bar  for  her  valued 
collaboration  on  the  first  edition  of  this  work;  to  W.  J. 
Grange,  of  the  New  York  Bar,  for  careful  reading  and  helpful 
comment;  to  P.  W.  Pinkerton,  of  Indianapolis,  for  his  many 
excellent  suggestions  and  improvements  in  the  text;  to  James 
H.  Wilhoit,  of  the  New  York  Bar,  for  assistance  in  pre- 
paring the  chapter  on  bills  of  exchange;  and  to  Katharine 
S.  Keane,  for  careful  and  intelligent  research  in  connection 
with  the  preparation  of  this  edition  and  for  good  work  in 
the  compilation  of  the  index. 

The  author  desires  further  to  extend  his  thanks  and  testify 
his  appreciation  of  all  those  interested  readers  throughout 
the  country  who  by  their  questions  and  comments  on  the 
original  text  have  enabled  him  to  make  the  present  edition 
more  accurate  and  comprehensive  than  would  otherwise  have 


VI 


PREFACE 


been  possible.    He  bespeaks  for  the  present  volumes  a  con- 
tinuance of  their  kindly  interest 

Blackstone  has  said  in  his  famous  Commentaries  that  "the 
science  of  the  law  should  in  some  manner  be  the  study  of 
every  free  citizen."  If  this  work  can  make  plain  to  its  readers 
some  of  the  practical  features  of  the  law  under  which  we 
live,  so  that  they  may  appreciate  its  virtues  and  know  its 
faults,  and  from  that  knowledge  may,  by  their  influence  and 
votes,  strive  to  simplify  its  procedure  and  remedy  its  defiden- 
cies,  the  book  will  have  served  its  end. 

Thomas  Conyngton 

New  York  City, 
March  i,  192a 


CONTENTS 


VOLUME  I 

Part  I— The  Law  of  the  Land 

Chapter 

I    Evolution  of  Law     .      .      .      .      . 
§  I.  Definition 


Page 
3 


2.  The  Origin  of  Law 

3.  Law  and  Liberty 

4.  Sources  of  J^w 


n    The  Written  Law 
§5.  Definition 


6.  Constitutional  Government 

7.  The  United  States  Constitution 

8.  Laws  of  Congress 

9.  State  Constitutions 

10.  Constitutional  Amendments 

11.  Constitutions  that  Legislate 

12.  Legislative  Enactments 

13.  Statute  Law 

14.  Subsidiary  Laws 


ni    The  Unwritten  Law 
(15.  Definition 


IS 


16.  The  Doctrine  of  Precedents 

17.  Court  Reports 

18.  The  Volumes  of  Reports 

19.  Citations 

20.  The  Common  Law 

21.  Law-Merchant  and  Commercial  Law 

22.  Unconstitutional  Laws 

23.  The  Recall  of  Judges 


IV    Law  and  Equity 

§  24.  Remedial  Law 

25.  Equity  in  the  Legal  Sense 

26.  Suits  at  Law  and  in  Eqiiity 

27.  Bringing  a  Suit  at  Law 

28.  Trial  at  Law 

29.  Bringing  a  Siait  in  Equity 

30.  Appeals  to  a  Higher  Court 

31.  AdvisabiUty  of  Litigation 


22 


Criminal  Law 

§  32.  Criminal  Procedure 

33.  Classes  of  Offenses  Against  the  Criminal  Law 

34.  Penalties 

vH 


35 


CONTENTS 


CONTENTS 


i 


IX 


Part  II — Contracts 

Chapter 

VI    Essential  Features  oi  a  Contiact 

$35.  Introductory 
36.  Definition 
37   Essential  Features 

38,  Competency  of  Parties 

39.  The  Subject  Matter  Must  be  Lawftu 
4a  The  Law  of  Place  ^ 

41.  The  Subject  Matter  Must  Exist 

42.  Agreement  of  the  Parties 

43.  Oral  Agreement 

44.  Consideration 


Pace 
4» 


Yn    How  Contracts  Are  Made  .      .      . 
§  45.  Classification  of  Contracts 
46.  Oral  Contracts 
.47.  Written  Contracts 

48.  The  Statute  of  Frauds 

49.  Contracts  Under  Seal 

50.  Contracts  of  Record 

51.  Express  and  Implied  Contracts 

52.  Quasi  Contracts 

53.  Executory  and  Executed  ContfBCts 

54.  Conditions  Precedent  and  Subsequent 

55.  Void  and  Voidable  Contracts 

56.  Drafting  a  Contract 

VIII    Effect  of  Contracts     .      .      .      • 

§57.  Illegal  Contracts 

58.  Effect  of  Mistakes 

59.  Effect  of  Fraud 

60.  Duress 

61.  Undue  Influence 

62.  Law  as  to  Alteration 

63.  Interpretation  of  Contracts 


S^ 


68 


Chapter 
XII    Actions  on  Contracts— General  Rules 

§  73.  Introductory 

74.  Specific  Performance 

75.  Rules  of  Evidence 

XIII  Tender  of  Payment  or  Performance    . 

S  76.  Definition 

77.  Time  to  Tender  Performance 

78.  Extent  and  Kind  of  Tender 

79.  Acceptance  of  Tender 

XIV  Joint  and  Several  Contracts  .... 

§  80.  Contracts  Made  by  More  Than  Two  Parties 

Part  III— Sales 


Page 
103 


III 


"5 


XV    Contracts  to  Sell 

§  81.  Sales  and  Contracts  to  Sell   . 

82.  Uniform  Sales  Act 

83.  What  is  Necessary  to  the  Contract  of  Sale 

84.  The  Agreement 

85.  Sales  to  Persons  Incompetent  to  Contract 

86.  The  Consideration 

87.  Nature  of  Subject  Matter 

88.  Destruction  of  Subject  Matter 

89.  Sales  to  Arrive 

90.  A  Contract  of  Sale  Must  Be  Legal 


121 


IX    Assignment  and  Novation    . 

§64.  Assignment  of  Contracts 
65.  Novation 

X    Discharge  of  Contracts 

§  66.  Discharge  by  Performance 

67.  Discharge  by  Agreement 

68.  Discharge  by  Various  Other  Causes 


•       •       • 


79 


84 


1 


XI    Enforcement  of  Contracts 
1 69.  Breach  of  Contract 

70.  Remedies  for  Breach  of  Contract 

71.  Law  Governing  Remedy 

72.  Statute  of  Limitations 


93 


XVI   Passing  Title 129 

§91.  Delivery 

92.  Selection  Necessary  to  Delivery 

93.  When  the  Title  Passes 

94.  Sales  Without  DeUvery 

95.  Conditional  Sales 

96.  State  Laws  on  Conditional  Sales 

97.  Requirement  of  Affidavits  to  Conditional  Sales 

Contracts 

98.  Rights  in  Illinois  and  Pennsylvania 

99.  Protection  Against  Landlord's  Lien 

100.  Protection  Against  Destruction  of  Property 

XVII    The  Statute  of  Frauds 138 

§  1 01.  Description  of  the  Statute  of  Frauds 

102.  Contracts  to  S^U 

103.  When  the  Contract  of  Sale  Must  be  in  Writing 

104.  Exception  for  Part  Pajrment 

105.  Exception  for  Part  DeHvery 

106.  Exception  for  Amounts  Below  Specified  Value 

107.  Exception  for  Work  or  Services 


»• 


X  CONTENTS 

Chapter 

XVIII    Warranties 

§  io8.  Introductory  ^ 

109.  Conditions  Precedent 

110.  Conditions  Subsequent 

111.  Express  Warranties 

1 12.  Implied  Warranties 


Page 
144 


Chapter 


XIX    Remedies 

§  113.  Rights  of  Unpaid  Seller  Under  the  Contract 

114.  Rights  of  Buyer 

1 15.  R^dssion  of  Sale 

XX    Sales  at  Auction 

5  1 16.  Regulations  for  Sales  at  Auction 

1 1 7.  Compliance  with  Conditions 

118.  Duties  of  Auctioneer 


iSi 


tS9 


Part  IV— Agency 


XXI    Principles  op  Agency       •      » 

'-  1 1 19.  Introductory 

120.  Definitions 

121.  The  Principal 

122.  The  Agent 

123.  General  Agents* 

124.  Special  Agents 

125.  Del  Credere  Agents 

XXII    The  Contract  of  Agency 

§  126.  Appointment 

127.  Express  Appointment 

128.  Implied  Appointment 

129.  Ratification 

130.  Sealed  Contracts 

131.  Appointment  of  Subagents 

132.  Servants  and  Employees 

133.  Void  Contracts  of  Agency 

XXIII  The  Principal 

1 134.  Principars  Duty  to  Agent 

135.  Prindpal's  Duty  to  Third  Piuty 

136.  Principal's  Liability 

137.  An  Undisclosed  Prmdpal 

XXIV  The  Agent  .      .      .      .      . 

f  138.  Agent's  Duty  to  Principal 
139-  Agent's  Obedience 

140.  Agent's  Good  Faith 

141.  Agent's  Care,  Skill,  and  Diligence 

142.  The  Agent's  Signature 


i6s 


CONTENTS 


1 143.  Agent's  Duty  to  Third  Party 

144.  Limitation  of  Agent's  Authority 

145.  Agent's  Fraudulent  Conduct 

146.  Agent's  Liability 


Page 


XXV    The  Third  Party 

(  147.  Third  Party's  Relation  to  Agent 
148.  Third  Party's  Relation  to  the  Principal 

XXVI    Termination  of  Agency         .... 

§  149.  Termination  by  Fulfilment 

y  150.  Termination  by  Either  Party 

151.  Termination  by  Disability 

152.  An  Agent  with  an  Interest 


Part  V — Negotiable  Instruments 


ao3 


305 


XXVII    Form  and  Interpretation 


ai3 


«73 


}  153.  The  Quality  of  Negotiability 

154.  Signature 

155.  Unconditional  Promise 

156.  Certainty  as  to  Sum 

157.  Payable  on  Demand 

158.  Certain  Future  Time 

159.  Payable  to  Order 

160.  Payable  to  Bearer 

161.  The  Date 

162.  Consideration 

163.  Delivery 

164.  Rules  of  Construction 
i6k.  Allowable  i^rovisions 
166.  Non-Essentials 


i8t 


188 


XXVIII    Negotiation 

§  167.  Method  of  Negotiation 

168.  The  Indorser's  Contract 

169.  Blank  or  Special  Indorsement 

170.  Restrictive  Indorsement 

171.  QuaUfied  Indorsement 

172.  Conditional  Indorsement 

173.  EfiEect  of  Indorsement 

XXIX    Rights  of  Holder    ...... 

1 174.  Holder  in  Due  Course 

175.  Defects  of  Title 

176.  The  Rights  of  a  Holder  in  Due  Course 

177.  Effect  of  Irregular  Transfer 


322 


226 


Xll 


CONTENTS 


CONTENTS 


xm 


Chaftek 

XXX    Liability  <i»  Pasties 


Pace 

399 


Chaptee 
XXXVI    Bank  Checks 


Page 
357 


A  A.  Ai  1 


1 178,  Liability  of  Maker 

179.  Liability  of  Indorser 

180.  Discharge  of  Indorser 

181.  Liability  of  Guarantor 

183.  Liability  of  Accommodatioii  Signer 

Pkesentment  for  Payment 

1 183.  Necessity  of  Presentment 

184.  Requirements  for  Presentment 

185.  Presentment  Excused 

186.  When  Due 


9$4 


XXXII    Notice  of  Dishonor 

1 187.  Necessity  of  Notice 

188.  Effect  of  Notice 

189.  Form  of  Notice 

190.  Time  of  Notice 

191.  Where  to  Send  Notice 

193.  When  Notice  Is  Not  Required 
193.  Protest 

XXXni    Discharge  of  Negotiable  Instruments    . 

§  194.  When  Discharged 

195.  When  Not  Discharftd 

196.  Effect  of  Alteration 

XXXIV    Promissory  Notes     ...••• 

§  197.  Definition 

198.  Liability  of  Maker 

199.  Interest 

300.  Demand  Notes  • 

301.  Effect  of  Renewal 

303.  Note  as  a  Gift 

XXXV    Bnxs  OF  Exchange  and  Acceptances 

§303.  Definition 

304.  Liability  of  Maker,  Drawer,  and  Acceptor 

305.  Acceptance 

306.  Dollar  Acceptance 

307.  Bank  Acceptances 

308.  Domestic  Bank  Acceptances 
*                      309.  Trade  Acceptances 

3lOw  The  Discount  of  Acceptances 

311.  Rules  for  Discoimt  of  Bank  Acceptances 

313.  Rules  for  Discount  of  Trade  Acceptances 

313.  The  Drawee 

314.  Presentment  for  Acceptance 

315.  Protest  for  Non-Acceptance 
216.  Bills  in  a  Set 


m 


S4S 


343 


1 217. 
218. 

219. 

320. 
321. 
222. 
223. 
22d. 
325. 
326. 


Definition 

Checks  as  Evidence  of  Payment 

Signature  of  Drawer 

Presentment  for  Payment 

Bank's  Relations  with  Depositor 

Bank's  Relations  with  Holder 

Revocation 

Certification 

Fraud 

Checks  as  Gifts 


Part  VI — ^Insurance 


XXXVII    Fire  Insueance 


267 


§  227.  The  Parties 

228.  Nature  of  the  Contract 

229.  Agents 

230.  The  Policy 

231.  Premiums 

232.  The  Property  Insured 

333.  Warranties  and  False  Re-»resentations 
234.  Settlement  of  Losses 


XXXVIII    Lite  Insurance 


280 


149 


§  235.  Nature  of  Contract 

236.  Insurable  Interest 

237.  The  Parties 

238.  The  Policy 

239.  Premium  Rates 
Agents 

Right  to  Change  Beneficiary 
Assigimaent  of  PoUcy 
Settlement  of  Losses 
Government  Insurance  for  Soldiers  and  Sailors 


240. 
241. 
242. 

343. 
344. 


XXXIX    Sundry  Insurance  Contracts 


990 


5245. 
246. 

247. 
348. 
349. 
350. 
351. 
352. 

253. 

254. 

255- 
356. 


Enumeration 

Marine  Insurance 

General  and  Particular  Average 

Accident  Insurance 

H^th  Insurance 

Group  Insurance 

Liability  Insurance 

Title  Insurance 

Burglary  Insurance 

Plate  Glass  Insurance 

Automobile  Insurance 

Other  Forms  of  Insurance 


XllF 


CONTENTS 


Part  VII— Employment 


Chaptek 

XL  The  CoimACT  of  Ehployment       ..... 

§357.  Introduction 

358.  Definition 

359.  What  Constitutes  a  Contract  ci  Einp]o]mient 

360.  Independent  Contractors 
36i.  Interpretation  of  Contract 

363.  An  Express  Contract  Cannot  be  Proved  by  Custom 

363.  Wages 

364.  Modification  of  Contract 

365.  When  Contract  Begins 

366.  Termination  of  Contract 

367.  Termination  of  Contract  by  Breach 

368.  Rights  and  Remedies  • 

369.  Employment  after  Expiration  of  Contract 

XL!    RxiATiONS  OF  Parties 

§  270.  Duties  of  Employee  to  Employer 

271.  Duties  of  Employer  to  Employee 

272.  Presumption  with  R^ard  to  Joint  Owners 

273.  Wages 

374.  Fines,  Deductions,  etc 


Page 

JOI 


313 


XUI    Employer's  Responsibility 

§375.  Introductory 
276.  Doctrine  of  Asstmiption  of  Risk 

377.  Doctrine  of  Contributory  N^ligenoe 

378.  The  Fellow-Servant  Rule 

379.  Employers'  Liability  Acts 

380.  Workmen's  Compensation  Acts 

381.  Modem  Statutory  Law 

382.  Schedules  of  Compensation 

383.  Who  are  Entitled  to  Compensation 

284.  Employer's  Defenses  Taken  Away  by  the  New  Act 
385.  Third  Persons 


3^ 


Ptrt  VIII— Partnership 

XUU    Introductory        .      .      .      .    ' 

§  286.  Definition 
387.  Partnerships  Distinguished  from  Non-Partnership 
Organizations 

XOV   The  Contract  of  Partnership 

f  388.  Parties 

389.  Kinds  of  Partners 

390.  Partnership  Contracts 

291.  The  Firm  Name 

292.  Partnership  a  Personal  Relatioii 

293.  Classification  of  Partner^ps 


339 


CONTENTS 


XV 


Chapter 

XLV    Partnership  Property 


§  294.  Nature  of  Partnership  Property 

295.  Liability  of  Partnership  Property  for  Debts 

296.  Profits 


Page 
353 


XLVI    Powers  and  Liabilities  of  Partners 

S  297.  Powers  of  Partners 

298.  Liabilities  to  Copartners 

299.  Intra-Partnership  Relations 

300.  Liabilities  to  Third  Persons 


361 


XLVII    Termination  of  partnership 

§  301.  Termination  by  Agreement 

302.  Enforced  Dissolution 

303.  Winding  up  the  Business 


368 


Part  IX— Corporations 


XLVIII    Nature  of  Corporations 


§  304.  Corporate  Entity 

305.  Classification 

306.  Corporations  Without  Capital  Stock 

307.  Corporations  With  Capital  Stock 

308.  Distinctive  Features 

309.  (i)  Creation  by  the  State 

310.  (2)  Limited  Powers 

311.  (3)  Limited  Liability 

312.  (4)  Legal  Entity  of  Corporation 
313'  (5)  Permanence 

314.  (6)  Stock  System 

315.  (7)  Corporate  Mechanism 

316.  Attractiveness  to  Investors 

317.  Disadvantages  of  the  Corporate  Form 


377 


XLIX    The  Charter 


5318.  Definition — S)monyms 

319.  Charter  Powers —  General 

320.  (i)  To  Sue  and  Be  Sued 

321.  (2)  To  Use  a  Seal 

322.  (3)  To  Buy,  Sell,  and  Hold  Property 

323.  (4)  To  Appoint  Directors,  Officers,  and  Agents 

324.  (5)  To  Make  By-Laws 

325.  (6)  To  Dissolve  Itself 

326.  (7)  To  Do  All  Things  Necessary 

327.  Charter  Powers — Special 

328.  Things  Ultra  Vires 

329.  Amendment  of  Charter 


38s 


XVI 


Chapter 


CONTENTS 


L    Incosposation 

1 330.  Application  for  Inoorporatloii 

331.  Incorporators 

332.  Name  of  Corporation 

333.  Purposes 

334.  Capitalization 

335.  Shares 

336.  Location 

337.  Duration 

338.  Number  of  Directors 

339.  Classification  of  Stock 

340.  Cumulative  Voting 

341.  Execution  of  Certificate 

342.  Filing  and  Recording 

343.  De  Facto  Corporation 

344.  Contracts  Prior  to  Incorporation 

LI    By-Laws 

§345.  Definition 

346.  Adoption 

347.  Amendment 

348.  Enforcement 


Paob 
391 


398 


CONTENTS 

Chapter 

S  374.  Vacancies  and  Removal  of  Directors 

375.  Regular  Meetings 

376.  Special  Meetings 

377.  Quorum 

378.  OflScers 

379.  Salaries 

380.  Vacancies  and  Removal  of  Officers 

381.  Dividends 

382.  Bank  Deposits 

383.  Execution  of  Contracts 

384.  Corporate  Seal 


VOLUME  II 
Part  X — Real  and  Personal  Property 
LV    Property  Rights 


xvu 
Page 


ll! 


ill 


HI    Stock 

$349- 
350- 
351. 
352. 

353- 
354. 
355- 
356. 
357- 
358. 
359. 


401 


Capital  Stock 
Stock  Certificates 
Capital  Stock  vs.  Capital 
Unissued  and  Issued  Stock 
Full-Paid  Stock 
No  Par  Value  Stock 
Common  Stock 
Preferred  Stock 
Treasury  Stock 
Lost  Certificates 
How  Transferred 


Lin    Stockholders  and  Their  Meetings  .....     410 

1 360.  Incorporators 

361.  What  Constitutes  a  Stockholder 

362.  Rights  of  Stockholders 

363.  Powers  of  Stockholders 

364.  Liabilities  of  Stockholders 

365.  Stockholders'  Meetings 

366.  Quorum 

367.  Voting 

368.  Voting  Trusts 

369.  Proxies 


LIV    Directors  and  Opficers 

1 370.  Status  and  Functions  of  Directors 

371.  Number  and  Authority 

372.  Liabilities 

373.  Qualifications 


417 


S  385.  Origin  of  Property 

386.  Rights  to  Personal  Property 

387.  Rights  Classified 

LVI    Real  and  Personal  Property  Distinguished 

S  388.  Personal  Property  Defined 

389.  Real  Property  Defined 

390.  Questionable  Cases 

391.  Fixtures 

LVn    Title  to  Personal  Property 

§392.  Title 

393.  Original  Title 

394.  Derived  Title 

395.  Accession 

396.  Confusion 

397.  Kinds  of  Ownefship 

LVIII    Transfer  op  Personal  Property  ,      * 

5398.  Gift 

399'  Sale 

400.  Chattel  Mortgage 

401.  Conditional  Sales 

LIX    Estates  in  Real  Property       .... 

§  402.  The  Nature  of  Real  Property 

403.  Right  to  Real  Property 

404.  Estates  in  Real  Property 

405.  Remainders  and  Reversions 

406.  Vested  and  Contingent  Remainders 

407.  Executory  Devises 

408.  Time  Limit  to  Effect  and  Executory  Devise 

409.  Dower  and  Curtesy 

410.  Homestead 


427 


430 


433 


438 


44a 


xvm 


\>lIArT£A 


CONTENTS 


411.  Easements 

412.  Joint  Tenancies  and  Tenancies  in  Common 

413.  Trusts 


Page 


4Sa 


454 


LX    Title  to  Real  Property  

}  414.  Original  Title 
415.  Acquired  Title 

LXI    Transfer  of  Real  Property    .      .      .      . 

§  416.  Conveyance  of  Real  Property 

417.  Warranty  Deed 

418.  Record  of  Deeds 

419.  Restrictions  in  Deeds 

420.  Searching  Title 

421.  Mortgage  of  Real  Property 

422.  Foreclosure 

423.  Kinds  of  Mortgages 

LXn    Landlord  and  Tenant wj- 

i  424.  Lease  of  Real  Property 

425.  Parties  to  a  Lease 

426.  Rights  and  Duties  of  a  Landlord 

427.  Rights  and  Duties  of  a  Tenant 

428.  Expediency  of  a  Written  Agreement 

Part  XI— Wills  and  Inheritance 

LXIII    Distribution  of  Property  of  an  Intestate 

1 429.  Definitions 

430.  Rules  of  the  Common  Law 

431.  What  Will  Become  of  Real  Property 

432.  What  Will  Become  of  Personal  Property 

433.  Is  It  Wise  to  Make  a  WiU? 


475 


LXIV   How  to  Make  a  Will 

S  434.  Who  Can  Make  a  Will 

435.  Restrictions  on  the  Power  of  Making  a  Will 

436.  General  Form  for  Wills 

437.  Kinds  of  Wills 

438.  Executors 

439.  Trustees 

440.  Trust  Estates 

441.  Statutes 

442.  How  to  Dispose  of  Real  Property 

443.  How  to  Dispose  of  Personal  Property 

444.  The  Residuary  Clause  and  Its  Vses 

445.  What  to  Do  with  the  Will 

LXV   How  TO  Change  or  to  Revoke  a  Wm 

§446.  How  to  Change  a  Will 
447-  How  to  Revoke  a  Will 


485 


501 


CONTENTS 

Chapter 

LXVI    Other     Ways    of  Disposing  of    Property  After 
Death 

§  448.  Deeds  of  Trust 
449.  Gifts  in  View  of  Death 

LXVII    The  Settlement  of  an  Estate 

§  450.  If  the  Deceased  Person  Left  a  Will 

451.  If  the  Deceased  Person  Did  Not  Leave  a  Will 

452.  Settlement  Without  Administrator 

LXVTII    Duties  of  Executors  and  Administrators 

§  453-  The  Procedure  of  Administration 

454.  Inventory 

455.  Advertising  for  Claims 

456.  Paying  Legacies 

457.  Caring  for  Funds 

458.  An  Executor's  Authority 

LXIX    Questions  Between  Life  Tenant  and  Remainderman 
§  459.  How  Conflicting  Rights  Arise 

LXX    Intermediate  and  Final  Accounts      .... 

§  460.  The  Obligation  Account 

461.  Kinds  of  Accounts  to  be  Filed 

462.  Final  Accounting 

463.  Preparing  Accounts 

LXXI    Rights  in  Property  When  There  Is  no  Will 

§  464.  In  the  Case  of  Real  Property 

465.  In  the  Case  of  Personal  Property 

466.  Rights  of  a  Husband  or  a  Wife 

467.  What  Creditors  Must  Do 

LXXII    Rights  in  Property  Left  by  Will      .... 

§  468.  If  Real  Property  Has  Been  Devised  By  Will 

469.  If  Personal  Property  Has  Been  Left  By  Will 

470.  Contesting  a  Will 

Part  XII — ^Personal  Relations 

LXXIII    Husband  and  Wife  

§  471.  Persons  WTio  May  Marry 

472.  What  Constitutes  a  Marriage 

473.  Personal  Rights  of  Husband  and  Wife 

474.  Rights  of  Husband   and  Wife  in  Each  Other's 

Property 

475.  Rights  of  Husband  or  Wife  In  Case  the  Other  Is 

Injured 

476.  Divorce 


XIX 


Page 


504 


506 


512 


S18 


521 


524 


528 


535- 


CONTENTS 


CONTENTS 


XXI 


Chaptek 
LXXIV    Parent  and  Child 

§  477.  Duties  and  Rights  of  Father  in  Relation  to  Child 

478.  Duties  and  Rights  of  Mother  in  Relation  to  Child 

479.  What  Duties  and  Rights  May  Be  Claimed  By 

Adopted  Children 

480.  Children  as  Criminals 

LXXV    Guardian  and  Ward     ....... 

§  481.  Personal  Guardian 
482.  Guardian  of  Property 

Part  XIII— Suretyship 

LXXVI    The  Contract  OF  Suretyship  OR  OF  Guaranty   . 
§483.  Definition 

484.  Nature  of  Contract 

485.  Written  Contract 

486.  Parties 

487.  Consideration 

488.  Delivery  and  Acceptance 

LXXVil   Rights  of  Surety  or  Guarantor     •      •      •      • 

{489.  Notice 

490.  Defenses 

491.  Reimbursement 

492.  Subrogation 

493.  Contribution 

494.  Extension  of  Time 

495.  Discharge 

Part  XIV— Debts  and  Interest 
IXXVin    Debts 


Page 
546 


Chapter 

LXXX    Interest 


Page 
584 


551 


591 


557 


561 


5  512.  Interest 

513.  Discount 

514.  Usury 

515.  Compound  Interest 

516.  Partial  Payments 

Part  XV — ^Bankruptcy 
LXXXI    Assignment  for  the  Benefit  of  Creditors 

§517.  Introductory 

518.  Rights  of  Debtors 

519.  Rights  of  Creditors 

520.  Void  Assignments 

521.  Rights  and  Duties  of  an  Assignee 

522.  Form  of  the  Assignment 

523.  Revocation  of  Assignment 

524.  Insolvency 

LXXXII    Bankruptcy  Proceedings enS 

§  525.  Receivership 

526.  Bankruptcy 

527.  Voluntary  Bankruptcy 

528.  Involuntary  Bankruptcy 

529.  Persons  Who  May  Bring  Bankruptcy  Proceedings 

530.  Persons  Who  May  Become  Involuntary  Bankrupts 


I 


S496.  Definitions 

497.  Evidences  of  Debt 

498.  Open  and  Stated  Accounts 

499.  Receipts  and  Releases 

500.  Part  Payment  in  Pull  Settlement 

501.  Accord  and  Satisfaction 

502.  The  Appropriation  of  Payment 

503.  Equitable   Jurisdiction   m   Actions  for  an 

Accounti2]g 

LXXIX    Enforcing  Payment  of  Debts  .      .      . 

§504.  When   the   Creditor  Has  Some  Security  for 
the  Debt 

505.  Where  There  Is  No  Security  for  the  Debt 

506.  Attempts  to  Defraud  Creditor 

507.  The  Modem  Theory  of  Credit 

508.  Liens 

509.  Attachment 

510.  Execution 

511.  Garnishment 


569 


LXXXIII    Bankruptcy  Proceedings  (Continued) 

§  531.  How  Bankruptcy  Proceedings  Are  Instituted 

532.  The  Referee 

533.  Procedure 

534.  Creditors 

535-  Rights  and  Duties  of  Receiver 

536.  Rights  and  Duties  of  Trustee 

537.  Rights  and  Duties  of  Bankrupts  in  Bankruptcy 

Proceedings 

538.  Preferred  Creditors 


604 


575 


LXXXrV    Discharge  in  Bankruptcy 

§  539-  Discharge  of  a  Bankrupt 


613 


540.  What  Debts  Remain  Undischarged 

Part  XVI— Bailments  and  Common  Carriers 


LXXXV    Bailments 

§  541.  What  Is  Meant  by  Bailment 

542.  Kinds  of  Bailment 

543.  Mandate  and  Deposit 

544.  Commodatum  or  Loan 


619 


xxn 


Chapter 


CONTENTS 


§545.  Pledge  or  Pawn 

546.  Hiring  of  a  Chattel 

547.  Bailment  for  Custody,  Services,  or  Transport 

548.  The  Contract  of  Bailment 

549.  Property  Rights 

550.  Duties  of  a  Bailee 

551.  Dissolution  of  Bailment 


Page 


LXXXVI    Common  Carriers 


629 


Common  Carriers 
The  Lien  of  The  Common  Carrier 
The  Termination  of  the  Bailment 
Interstate  Commerce  Commission 

556.  Bills  of  Lading 

557.  Carriers  of  Passengers 

558.  Telephone  and  Telegraph  Companies 


§552- 
553- 
554- 

555 


Part  XVII— -Patents,  Trade-Marks,  and  Cop3rright8 

LXXXVII    Patents  ......... 

i  559.  Constitutional  Authority 

560.  Introductory 

561.  Who  May  Obtain  a  Patent 

562.  What  Inventions  are  Patentable 

563.  What  Is  Unpatentable 

564.  Procedure  to  Obtain  Patent 

565.  Procedure  in  the  Patent  Office 

566.  Interference  Proceedings 

567.  Final  Decision 

568.  Government  Fees  and  Grant 

569.  Marking  a  Patented  Artide 

570.  Design  Patents 

571.  Foreign  Patents 

572.  Assignments  and  Licenses 

573.  Joint  Inventors 

574.  Infringements 

575.  Official  Publication 

576.  Practical  Information 

LXXXVIII    Trade-Marks 

5577.  Description 
•  *         578.  Common  Law  Trade-Marks 

579.  Essential  Elements  of  a  Trade-Mark 

580.  What  May  Not  Be  Used 

581.  WTiat  Can  Be  Used 

582.  The  Common  Law  Right 

583.  Trade-Marks  are  Not  Assignable  Apa.*t  from 

Business 

584.  Summary 


6$9 


CONTENTS 

Chapter 

LXXXIX    Registration  or  Trade-Marks 

§  585.  The  Federal  Trade-Mark  Law 

586.  The  Ten- Year  Clause 

587.  Who  May  Register  a  Trade-Mark 

588.  Procedure  for  Registration 

589.  What  Will  Bar  a  Trade-Mark 

590.  Opposition  to  Registration 

591.  Amendments,  Rejections,  and  Appeals 

592.  Certificate  of  Registration 

593.  Assignments 

594.  Foreign  Registration 

XC    Trade-Names  and  Unfair  Competition 

§  595-  Unfair  Competition  Defined 

596.  Trade- Names 

597.  Secondary  Meaning 

598.  Personal  and  Corporate  Names 

599.  Geographical  Names 

600.  Imitation  of  Packages 

601.  Other  Forms  of  Unfair  Competition 

602.  Price  Cutting 


XXlll 

Page 
660 


666 


XCI 


Copyrights  

§  603.  Definition 

604.  Who  May  Obtain  Copyright 

605.  Subject  Matter  of  Copyrights 

606.  The  First  Step 

607.  Subsequent  Ptocedure 

608.  Making  Out  the  Application  for  Copjrright 

609.  The  Affidavit 

610.  The  Fees 

611.  The  Books  Deposited 

612.  Time  for  Filing  Copyright 

613.  Renewals 

614.  British  Copyright 


Part  XVIII— Taxation 


075 


i9^ 


XCII    Laying  Taxes 

S  615.  Who  Has  the  Right  to  Lay  Taxes 

616.  Purposes  for  Which  Tax  May  Be  Laid 

617.  Methods  of  Taxation 

618.  Extent  to  Which  Persons  May  Be  Taxed 


687 


XCIII    Collecting  Taxes       .... 

§  619.  Assessment  of  Real  Property 

620.  Assessment  of  Personal  Property 

621.  Payment  of  Taxes 

622.  Taxation  of  Corporations 

623.  The  Federal  Income  Tax 


^3 


CONTENTS 


Pittt  XIX— Arbitration 
Chapter 

XCrV    Arbitration  and  Law 


§634. 
625. 
626. 
627. 
628. 
629. 
630. 
631. 
632. 


Advantages  of  Arbitration 
Objections  to  Arbitration 
Statutory  Arbitration 
Agreement  for  Arbitration 
Withdrawal  from  Arbitration 
Hearings 

Signing  the  Award 
Enforcing  the  Award 
Setting  Aside  the  Award 


Page 
701 


Part  XX — Law  and  Lawyers 

XCV    Study  of  Law  for  Business  Men 

1 633-  Law  Books  for  Study 

634.  Law  Books  for  a  Busy  Man 

635.  The  Case  Method  of  Legal  Study 

636.  Taking  a  Law  Course 

637.  Courses  in  Commercial  Law 


CONTENTS 

Chapter 

XCIX    Evidencing  an  Instrument    .,,... 
Form 

2.  Agent's  Signature 

3.  Corporate  Signatures  to  Letters 

4.  Corporate  Signature 

5.  Testimonium  Clause — Two  Corporate  Signatures 

6.  Testimonium  Clause— Corporate  and  Individual  Sig- 

natures 
7-  Attestation  Clause 

8.  Attestation  Clause  in  a  Will 

9.  Acknowledgment  of  Individual  Person 

10.  Acknowledgment  of  Attorney 

11.  Clerk's  Authentication 

12.  Affidavit 


Page 

744 


711 


XCVI    Choosing  a  Lawyer 


638.  The  Legal  Profession 

639.  The  Domination  of  Precedent 

640.  The  Conservatism  of  the  Law 

641.  Ethical  Standards  of  the  Bar 

642.  The  Criminal  Lawyer 

643.  Selecting  a  Lawyer 

644.  Lawyers'  Compensation 


716 


XCVII    Law  as  a  Vocation 


C    Contract  Forms 

Form 

13.  Simple  Contract 

14.  Contract  by  Letters 

15.  Unilateral  Contract 

16.  Formal  Contract 

17.  Corporate  Contract 

18.  Assignment  of  Contract 

19.  Assignment  of  Contract— Indorsement  Form 

CI    Forms  op  Sales  Contracts     .      .      ;      ; 
Form 

Memorandum  of  Sale 
Contract  of  Sale  by  Letters 
Conditional  Sales  Contract 
Bill  of  Sale— Personal 
Bill  of  Sale— Personal 
Contract  of  Warranty 


757 


762 


20. 
21. 
22. 

23. 
24. 

25. 


(  645.  Necessity  of  the  Work  of  a  Lawyer 

646.  The  Work  of  the  Family  Lawyer 

647.  Business  and  PubUc  Life 

648.  The  EflFect  of  Legal  Training 

649.  The  Dignity  of  the  Profession 

650.  Law  as  a  Practical  Vocation 

651.  Succeeding  in  the  Law 

652.  Deceptive  Statistics 

653.  Practical  Directions 


Part  XXI— Forms 


736 


XCVIII    Drafting  a  Contract 

Form 
I.  The  Contract  as  Drafted 


739 


Cn    Agency  Forms  .... 

Form 

26.  Appointment  of  Special  Agent 

27.  Appointment  of  General  Agent 

28.  Power  of  Attorney 

29.  Power  of  Attorney — Corporate 

30.  Revocation  of  Power  of  Attorney 

31.  Proxy — Simple  Form 

32.  Proxy— Unlimited 

33.  Revocation  of  Proxy 

CIII   Forms  of  Negotiable  Instruments 
Form 

34.  Check  by  Individual  • 

35.  Corporate  Check 

36.  Corporate  Indorsement  of  Check 

37.  Voucher  Check 

38.  Note  by  Individual 

39.  Corporate  Note— by  President 


767 


773 


XXVI 


Chaftei 


CONTENTS 


CONTENTS 


I 

i 


Ponii 

40.  Corporate  Note— By  Treasurer 

41.  Corporate  Note— Collateral  Security 

42.  Sight  Draft  ' 

43.  Bank  Acceptance 

44.  Trade  Acceptance 
45'  Certificate  of  Protett 

CIV    Forms  of  Employment  Contiacts 

Form  '       * 

46.  Contract  of  Employment — Simple  Form 

47.  Contract  of  Employment 

48.  Contract  of  Employment  by  Letters 

49-  Contract  of  Employment  with  Share  in  Profite 

CV   Partneeship  Forms      . 

Pomi 

50.  Simple  Articles  of  Partnership 

51.  Articles  of  Copartnership 

52.  Sundry  Partnership  Clauses 

CVI    Corporate  Organization  Forms 
Form 

53.  Subscription  list 

54.  Stock  Certificate— Common  Stock 

55.  Assignment  of  Stock  Certificate 

56.  Certificate  of  Incorporation — New  York 

57.  By-Laws— Simple  Form 

CVII    Forms  for  Corporate  Meetings     . 
Form 

58.  Call  and  Waiver  for  Special  Meeting  of  Oirettors 

59.  Agreement  to  Consent  Meeting  of  Directors 

60.  Notice  of  Special  Meeting  of  Directors 

61.  Minutes  of  Special  Meeting  of  Stockholders 

62.  Minutes  of  Regular  Meeting  of  Directors 

63.  Motions 

64.  Directors'  Resolutions 

65.  Certified  Resolution  Designating  Bank 

CVin    Miscellaneous  Corporate  Forms 
orm 

66.  Resignation  of  Director— Tentative 

67.  Resignation  of  Director— Peremptory 

68.  Report  of  Committee  on  By-Laws 

69.  Treasurer's  Affidavit— Cdrporate  Statement 

CIX    Real  and  Personal  Property  Forms 
Form 
7a  Chattel  Mortgagt 

71.  Lease 

72.  Deed  With  Full  Covenant! 

73.  Real  Estate  Mortgage 


Pagb 


Chapter 

CX    Sundry  Forms 


7<t 


7«4 


Form 

74.  General  Release 

75.  Will 

76.  Bill  of  Lading 

77.  Guaranty  Contract 

78.  Guaranty  Contract  by  Letter 

79.  Agreement  for  Arbitration 


Appendix 

Appendix  A— Chart  Showing  Jurisdiction  of  State  Courts 
B— A  Professional  Law  Library  .... 
C— Glossary 


xxvu 

Page 
811 


821 
822 
826 


7M 


797 


804 


807 


BUSINESS  LAW 


PART  I 


THE  LAW  OF  THE  LAND 


CHAPTER  I 


EVOLUTION  OF  LAW 


§1.    Definition 

The  English  word  "law"  has  a  variety  of  meanings.  We 
talk  loosely  of  the  law  of  gravitation,  civil  law,  common  law, 
written  law,  ecclesiastical  law,  the  laws  of  health,  the  laws  of 
God,  etc.,  etc.  For  the  sake  of  clearness  it  is  necessary  in  this 
book  to  limit  the  word  to  those  rules  of  action  and  conduct 
which  regulate  our  relations  with  our  fellow  men. 

The  legal  definition  of  law  is  "a  rule  of  action  prescribed 
by  the  supreme  authority,"  and  to  that  is  usually  added,  "com- 
manding that  which  is  right  and  prohibiting  that  which  is 
wrong."  This  last  part  of  the  definition  must  always  be  quali- 
fied by  the  explanation  that  the  words  "right"  and  "wrong" 
in  this  connection  are  to  be  construed  as  legally  right  and 
legally  wrong.  At  times  what  is  legally  right  may  be  morally 
wrong,  and  at  other  times  what  is  legally  wrong  may  be 
morally  right. 

§  a.    The  Origin  of  Law 

It  is  impossible  to  Imagine  any  state  of  society  without 
some  law,  that  is,  some  "rule  of  action."  A  solitary  man  in  an 
uninhabited  country  might  be  said  to  be  without  law,  but  as 
soon  as  one  other  human  being  came  into  any  relation  with 
him,  certain  rules  and  customs  would  grow  up  to  regulate  their 
mutual  rights,  and  these  would  soon  have  the  form  and  the 
force  of  law.  Children  in  their,  play  have  rules  and  customs 
to  govern  their  actions.    Among  the  students  of  every  college 

3 


V 


I 


4  THE  LAW  OF  THE  LAND 

there  is  a  curiously  complex  system  of  rules  and  customs 
rigidly  enforced,  which  defines  the  rights  and  the  duties  of  the 
different  classmen  and  their  relations  to  others  in  the  college. 

A  simple  people  living  in  a  sparsely  settled  country  could 
get  along  with  a  minimum  of  law,  but  a  highly  or^nized 
people  living  in  a  densely  populated  country  require  many 
laws.  Strangers  used  to  comment  on  the  number  of  "Es  ist 
yerboten"  signs  in  Germany,  but  a  complicated  system  of  law 
IS  the  necessary  consequence  of  a  dense  population  and  a 
highly  organized  social  structure. 

§  3-    Law  and  Liberty 

Laws  are  a  necessary  evil  incident  to  social  existence.    The 
lone  man  in  a  wilderness  has  complete  liberty.    As  others  join 
him,  laws  and  established  rules  become  necessary.    Every  law 
and  every  rule  subtracts  from  the  individual's  previous  liberty 
of  action  and  circumscribes  his  freedom.    On  the  other  hand, 
the  advantages  of  social  life  and  achievement  are  great;  there- 
fore the  majority  of  mankind  are  wUling  to  pay  the  price, 
which  Is  submission  to  law.     The  trouble  comes  from  the 
fractious  few  who,  while  they  enjoy  the  advantages  of  living 
in  a  civilized  community,  are  not  willing  to  pay  the  price,  and 
who  seek  to  evade  the  laws  which  are  obeyed  by  others  and 
which  alone  make  the  civilized  community  possible. 

§  4.    Sources  of  Law 

The  beginnings  of  our  legal  system  go  back  to  the  early 
history  of  our  country  when  the  colonists  from  England  first 
established  courts,  and  decided  the  cases  that  came  up  accord- 
ing to  the  principles  of  the  law  of  England  as  it  existed  at 
that  time-that  is,  they  utilized  as  much  as  was  applicable  to 
conditions  prevailing  in  the  colonies.  This  law  was  prin- 
cipally  the  famous  "common  law"  of  England  that  had  grown 
up  through  centuries.    Its  provisions  were  of  great  advantage 


EVOLUTION  OF  LAW  S 

to  the  colonists  when  the  rights  conferred  by  common  law 
were  infringed  by  the  arbitrary  acts  of  the  home  government. 

They  were  able  to  show  that  the  rights  they  claimed  were 
conferred  by  the  common  law,  and  that  the  king  and  the 
parHament  were  seeking  to  deprive  them  of  the  common 
birthright  of  Englishmen.^ 

Colonial  Charters.  Most  of  the  colonies  had  been  estab- 
lished under  charters — instruments  which  served  as  our  writ- 
ten constitutions  do  now.  Connecticut  and  Rhode  Island 
continued  to  use  colonial  charters  as  substitutes  for  constitu- 
tions even  after  the  Revolution.  To  the  common  law  were 
added  the  enactments  of  the  colonial  legislatures  that  had  been 
established  in  each  colony.  The  power  of  these  colonial  legis- 
latures was  limited  by  the  provisions  of  the  charter  under 
which  the  particular  colony  existed. 

Effect  of  the  Articles  of  Confederation.  At  the  time  of 
the  Revolution  the  colonies  adopted  the  Articles  of  Confedera- 
tion, which  left  each  separate  colony  to  establish  such  govern- 
ment as  it  saw  fit.  The  authority  of  these  governments  was 
expressed  usually  in  a  constitution  which  took  the  place  of 
the  old  charter  and  in  legislative  enactments  passed  to  sup- 
plement the  constitution  and  to  apply  general  principles  to 
particular  cases. 

The  Federal  Constitution.  Later,  when  the  Federal  Con- 
stitution was  adopted,  its  authority  became  supreme,  and  as 
each  colony  joined  the  new  nation  the  local  governments  were 
shaped  according  to  the  basic  principles  of  the  Federal  Con- 
stitution. The  common  law,  the  state  constitutions  and 
charters,  and  the  enactments  of  state  legislatures,  all  gave  way 
on  any  point  that  conflicted  with  the  Federal  Constitution. 
This  subject  is  treated  more  fully  in  the  two  succeeding 
chapters. 

>CooIey*s  Constitutional  Limitations,  Chapter  III. 


THE  LAW  OF  THE  LAND 


Review  Questions 


I. 

2. 


Give  the  legal  definition  of  "the  law/' 

What  do  you  understand  by  "the  supreme  authority"  in  the 
definition? 

3.  Mention  some  action  legally  right  but  morally  wrong. 

4.  How  far  is  the  law  a  guide  to  what  is  morally  right? 

5.  Can  you  make  men  moral  by  law? 

6.  What  is  the  origin  of  law? 

7.  What  is  the  origin  of  the  laws  regulating  the  operation  of  auto- 

mobiles?   How  far  do  they  date  back? 

8.  If  a  body  of  men  were  wrecked  on  an  uninhabited  island  would 

they  be  subject  to  any  law?    What  would  probably  happen? 

9.  Why  are  we  willing  to  submit  to  law  and  lose  our  freedom  to  do 

as  we  choose? 
ID.    What  would  be  the  condition  ot  a  community  without  any  law? 
II.    What  are  the  sources  of  the  law  in  this  country?    Outline  them 

in  order  of  time.    Outline  them  in  order  of  authority. 


f 


t 


CHAPTER  II 

THE  WRITTEN  LAW 

§  5.    Definition 

The  technical  term  "written  law"  means  law  that  is  em- 
bodied in  constitutions,  acts  of  Congress,  of  state  legislatures, 
and  of  other  bodies  with  legislative  authority.  In  many  coun- 
tries all  the  governing  law  is  this  so-ca'  -^d  "written  law." 
Napoleon,  who  had  a  better  title  to  fame  in  the  code  of  laws 
to  which  his  name  is  attached  than  in  all  his  conquests,  called 
together  the  persons  most  learned  in  law  to  reduce  into  one 
orderly,  compact  body  all  the  varying  laws  at  that  time  pre- 
vailing in  France.  The  "Code  Napoleon"  which  was  the  result 
has  from  that  time  to  the  present  day  been  the  major  law  of 
France  and  is  what  we  call  "written  law."  No  similar  codifi- 
cation of  all  existing  laws  has  ever  been  attempted  in  the 
United  States,  and  our  so-called  "written  law"  is  only  a  part 
of  the  body  of  law  by  which  we  are  governed. 

§6.    Constitutional  Government 

Nevertheless  in  our  country  the  written  constitution  is  the 
basis  of  all  law.  This  is  true  of  the  United  States  as  a  whole 
and  also  of  each  separate  state.  A  written  constitution  is  the 
fundamental  law  on  which  all  other  laws  are  based  and  to 
which  they  are  all  subject.  A  constitution  has  been  explained 
as  that  written  instrument  which  defines  the  powers  of  govern- 
ment and  limits  the  exercise  of  those  powers  for  the  protection 
of  individual  rights.  The  power  of  Congress  is  derived  from 
the  Constitution  of  the  United  States.  Each  state  legislature 
has  only  the  power  granted  by  the  state  constitution.    "Con- 

7 


r 


I 

I 


8 


THE  LAW  OF  THE  LAND 


gress  can  pass  no  laws  but  such  as  the  Constitution  authorizes 
expressly  or  by  clear  implication." 

§  7.    The  United  States  Constitution 

The  Constitution  of  the  United  States  is  the  highest  au- 
thority in  the  United  States.  Next  in  rank  come  laws  enacted 
by  Congress  in  pursuance  of  the  powers  enumerated  in  the 
Constitution.  For  example,  Congress  has  power  to  regulate 
commerce  with  foreign  nations  and  among  the  several  states, 
and  under  this  authority  it  has  passed  the  "Anti-Trust  Law." 
On  the  other  hand,  the  Constitution  does  not  grant  Congress 
any  legislative  power  in  regard  to  marriage  and  divorce,  and 
for  this  reason  Congress  is  not  authorized  to  enact  a  federal 
law  regulating  divorces,  however  desirable  such  a  uniform  law 
might  be.  Under  the  present  Constitution  this  matter  is  left 
to  the  discretion  of  the  separate  states,  and  divorce  laws 
change  as  state  lines  are  crossed. 

At  the  time  of  the  adoption  of  the  Federal  Constitution 
the  representatives  of  the  separate  states  were  every  whit  as 
jealous  of  the  rights  of  the  states  as  we  as  a  nation  were 
jealous  of  the  rights  of  the  United  States  in  the  matter  of  the 
League  of  Nations.  They  clung  to  the  sovereign  rights  of 
states  and  feared,  worse  than  men  ever  feared  war  and 
pestilence,  the  sinking  of  the  state  in  the  nation.  There  is  an 
extremely  interesting  parallelism  between  the  arguments  ad- 
vanced against  the  adoption  of  the  National  Constitution  by 
the  states  and  those  advanced  against  the  adoption  of  the  inter- 
national constitution  by  the  nation.  The  National  Constitution 
as  adopted  was  a  compromise  whose  makers  held  that  the 
powers  of  the  United  States  as  a  nation  were  to  be  limited,  so 
as  to  leave  to  the  separate  states  the  maximum  of  sovereignty. 
Their  purpose  in  drafting  the  Constitution  was  to  define  these 
limits  to  national  supremacy  with  exactitude  and  carefully  to 
mark  out  the  powers  of  Congress  beyond  which  it  could  not 


THE  WRITTEN  LAW  9 

go.  Fortunately,  grants  of  power  as  expressed  in  the  Con- 
stitution were  couched  in  general  language,  and  in  interpreting 
their  meaning  the  Supreme  Court  of  the  United  States  has, 
in  many  instances,  placed  a  liberal  construction  upon  them, 
so  that  Congress  today  is  a  far  more  powerful  body  than  it 
otherwise  would  have  been.  For  example,  at  the  time  the 
Constitution  was  adopted  no  one  dreamed  of  the  enormous 
power  granted  to  Congress  in  the  right  "to  regulate  commerce 
between  the  states."  The  commerce  between  the  states  at  the 
time  the  Constitution  was  adopted  was  of  little  significance 
and  the  power  to  regulate  was  of  small  moment.  With  the 
vast  extension  of  our  interstate  commerce,  however,  the  con- 
gressional power  of  regulation  has  grown  to  tremendous  pro- 
portions. The  recent  decision  of  the  Court  in  regard  to  the 
constitutionality  of  the  Adamson  railroad  wage  law  would 
seem  to  extend  this  power  almost  without  limit.  The  great 
war  necessitated  federal  control  of  the  railroads.  Even  though 
the  roads  are  returned  to  their  corporate  owners,  it  is  likely 
that  there  will  be  an  increased  supervision  by  the  central  gov- 
ernment that  will  vastly  and  permanently  expand  the  authority 
of  the  Federal  Government. 

The  wonderful  thing  about  the  Constitution  of  the  United 
States  is  that  though  it  was  devised  over  a  century  and  a 
quarter  ago,  and  though  the  changes  in  our  country  and  in  its 
modes  of  life,  in  its  social  relations,  and  in  its  methods  of 
business  have  been  tremendous,  the  old  Constitution,  with  but 
few  changes,  still  serves  as  the  fundamental  law  of  the  land 
and  chafes  in  but  few  places.  Well  did  Bryce  in  his  "American 
Commonwealth"  say  of  it: 

The  Constitution  of  1789  ....  after  all  deductions 
....  ranks  above  every  other  written  constitution  for  the 
intrinsic  excellence  of  its  scheme,  its  adaptation  to  the  cir- 
cumstances of  the  people,  the  simplicity,  brevity,  and  preci- 
sion of  its  language,  its  judicious  mixture  of  definiteness  in 
principle  with  elasticity  in  detail. 


lO 


THE  LAW  OF  THE  LAND 


THE  WRITTEN  LAW 


II 


S  8.    Laws  of  Congress 

The  legislative  power  of  Congress  is  limited  to  specific 

tTto^^ZT  "^  *'  ''°"^*""^'°"-     Congress  hTs" 
power  to    regulate  commerce  with  foreign  nations  and  among 

Ae  several  states,  and  with  the  Indian  tribes."  but  hTno 
S  which"  ""^.'""^  ''^'^•^"^  '  '^''^^y  -  -y  J^ind  7f 
other  hand   Congress  is  authorized  to  "coin  money   reflate 

t:^u:'^r'  "'^  °»  't^  '"'"•  -'^  «^  *^  SnS « 

Sp^^^nr'^r  '.'^•^  P°*^'-  ^^"  "^  «  system  of 

entire  country.    If  ever  we  adopt  the  metric  system  it  will  be 

of^tr     "'°°  °'  ''*'"^"^'  "^'^  '^•^  consdtutionallll^ 

Whenever  Congress  acts  under  a  constitutional  grant  of 
power.  Ae  states  are  excluded  from  legislation  on  that  subject 
For  instance  Conpess  has  power  to  pass  "uniform  law  on 
the  subject  of  bankruptcy."  and  when  the  present  bankrupt^ 
law  was  passed  m  1898  it  at  once  nuUified  all  the  existing  sUte 
laws  on  the  subject  of  insolvency.  Laws  passed  by  Cong  el 
*n  pursuance  of  its  constitutional  powers  are  superior  to  state 
constitutions  and  state  laws. 

§9>    State  Constitutioiis 

At  the  time  of  the  adoption  of  the  National  Constitution 
each  of  the  thirteen  original  states  was  exercising  the  powers 
of  government  under  some  form  of  written  constitution 
These  instruments  remained  in  effect,  except  in  those  particu- 
lars which  were  overniled  by  the  Constitution  of  the  United 
Mates  The  newer  states  have  adopted  constitutions,  and  be- 
fore  the  states  were  admitted  it  was  necessary  for  Congress 
to  accept  the  proposed  constitutions  But  within  the  limits  of 
each  particular  state  the  state  constitution  is  supreme     The 


state  legislature  cannot  enact  a  law  which  goes  counter  to  any 
of  the  provisions  of  the  state  constitution. 

§  10.    Constitutional  Amendments 

It  was  intended  by  those  who  framed  our  system  of  gov- 
ernment that  amendment  of  the  Constitution  of  the  United 
States  should  be  both  difficult  and  slow.  They  did  not  intend 
that  a  majority  of  the  voters  should  at  any  time  amend  the 
Constitution.  They  did  not  have  such  entire  confidence  in  the 
wisdom  of  the  common  people  as  to  be  willing  to  empower  a 
bare  majority  of  the  voters  to  set  aside  the  constitutional 
provisions  they  had  so  carefully  devised.  So  they  provided 
that  no  amendment  should  be  valid  as  a  part  of  the  Constitu- 
tion unless  it  were  first  proposed  by  two-thirds  of  both  Houses 
of  Congress  and  afterwards  ratified  by  three-fourths  of  the 
several  states.  As  it  was  purposely  made  difficult  to  amend 
the  United  States  Constitution,  so  most  of  the  states  have 
likewise  made  it  more  or  less  difficult  to  amend  or  to  change 
their  constitutions.  In  some  states  a  convention  for  the  special 
purpose  of  revising  the  constitution  is  called  at  stated  periods ; 
others  leave  to  the  legislature  the  calling  of  the  conventions, 
while  the  usual  plan  is  for  the  legislature  to  submit  separate 
amendments  to  the  people  from  time  to  time. 

§  IX.    Constitutions  That  Legislate 

Constitutions  are  intended  to  be  permanent,  and  therefore 
should  lay  down  only  broad  principles.  They  should  not  be 
encumbered  with  legislation  on  any  subject  on  which  the  policy 
or  the  best  interests  of  the  people  are  likely  to  change.  The 
pressure  for  change  has  been  quite  as  strong  as  the  framers 
of  the  constitution  foresaw. 

At  the  present  time  many  persons  desiring  to  introduce 
reforms  and  to  secure  liberal  legislation  fret  at  the  delays  and 
the  difficulties  of  overcoming  constitutional  impediments,  and 


I2 


THE  LAW  OF  THE  LAND 


h«^ce  advocate  making  our  constitutions,  both  federal  and 

vl;r'T.      '"'"'r"'  ^"'  '^"  ^^^^""^t'-  -  their  pro 
visions.     There  is  such  a  distrust  today,  moreover   of  the 

:^Z:'  '^'^^'^'T  *^*  •"  '"^"^  ''  *^  newer  sLe  con! 
SnTft  fril^r-  \'"'"  T''"''''^  *^^  ^''-'^  have 
o^  OkLL  ^  T^  f "°"-  ^°'  "^^""P'^'  *^  Constitution 
of  Oklahoma  provides  that  eight  hours  shall  constitute  a  day's 

work  throughout  the  state;  that  railways  shaU  not  cha'ge 
passengers  more  than  two  cents  per  mile,  while  the  corporation 
commission  may  exempt  any  railway  in  case  its  earnLgs  are 
so  low  as  to  justify  a  higher  rate;  that  railways  shall  have 
adequate,  comfortable,  and  clean  stations,  etc  By  incor! 
porating  sud,  detailed  legislation  in  a  state  constitution,  its 
function,  which  ,s  to  provide  fundamental  and  basic  law  is 
confused  with  that  of  the  legislature,  which  is  to  provide  laws 

§  la.    Legislative  Enactments 

mJ^.T  1^  ^'^'^  ^""^  ^"*°"*y  *°  *^  st^te  constitutions 
come  the  laws  or  acts  of  the  separate  state  legislatures  so  far  as 
A^  conform  to  the  Constitution  of  the  United  States  and  the 
constitution  of  the  particular  state.  These  are  known  as 
statutes  and  are  of  authority  in  the  state  where  they  are  en- 

1ft    ?     r  M^"  '"  ^'^'^  '""''  *^  ordinances  or  laws 

^fi^^il  °i  /""""  ^""^  '^°'™"°"  '=°""^i's  'n  towns  and 
ernes.    The  law  from  all  of  these  different  sources-constitu- 

Tl^7  ?  ^"^'''''  ''"^  "^  legislatures,  and  ordinances 
of  mun  cipal  governments-may  be  said  to  make  up  the  body 
of  what  IS  called  the  "written  law."  in  contradistinction  to 

rifcTaVer  ""  ''""  "''*  '^  "'^""''^  '"  the 


THE  WRITTEN  LAW 


13 


§13.    Statute  Law 

The  term  "statute  law"  or  "statutory  law"  is  frequently 
used  in  contradistinction  to  the  common  law.  In  its  general 
use  it  means  all  law  expressed  in  constitutions,  codes  and  en- 
actments of  the  legislature,  and  is  identical  with  the  term 
"written  law"  as  used  herein.  In  a  narrower  sense  it  means 
the  legislative  enactments  of  the  states  or  of  the  United  States, 
which  are  published  in  volumes  of  statutes,  or  revised  statutes, 
as  "The  Revised  Statutes  of  the  State  of  New  York."  In  such 
a  work  will  be  found  all  the  laws  regulating  the  conduct  and 
activities  of  the  citizens  and  others  in  the  state. 

The  common  law  gives  way  whenever  it  comes  in  conflict 
with  the  statute  law.  The  legislature  in  each  state  has  au- 
thority to  supersede,  extend  or  abrogate  the  common  law. 
The  common  law  is  the  old  law  that  prevails  until  it  is  over- 
ruled by  statutes  of  the  United  States  or  of  a  state  legislature. 


§  14.    Subsidiary  Laws 

In  late  years  there  has  come  into  existence  an  immense 
additional  body  of  written  law  consisting  of  the  rules  and 
regulations  issued  by  boards  of  health,  building  boards,  school 
authorities,  and  various  bureaus  and  commissions.  For  in- 
stance, the  Interstate  Commerce  Commission  is  empowered  by 
Congress  to  regulate  particular  matters  concerning  the  rail- 
roads. In  most  of  the  states  there  are  railroad  commissions 
with  similar  authority  to  regulate  traffic  within  state  boun- 
daries. Moreover,  the  different  transportation  companies  and 
the  other  corporations  operating  public  utilities  have  the  right 
to  make  reasonable  regulations  for  the  government  of  those 
using  their  facilities.  Thus,  in  tlie  aggregate,  the  "written" 
or  "statutory"  law  comprises  a  vast  number  of  legal  and 
semi-legal  enactments,  from  articles  of  tlffe  Constitution  down 
to  the  rules  of  the  trustees  of  the  smallest  school  district. 


14 


THE  LAW  OF  THE  LAND 

Review  Questions 


1.  What  is  written  law? 

2.  What  is  a  constitutional  government? 

3.  Does  a  constitution  have  to  be  written  ? 

4.  What  is  meant  by  a  government  of  limited  powers? 

5.  What  is  the  highest  source  of  law  in  the  United  States? 

7.    Why  cannot  Congress  give  us  a  system  of  uniform  divorce  laws  > 

a    Has   Congress   the   right   to   debar   from   interstate   commeT'; 

articles  made  by  child  labor?    Give  reason  for  your  answer 

Why  has  It  been  made  difficult  to  amend  our  constitution  ?       ' 

What  IS  the  difference  between  matters  that  should  be  embodied 

m  a  constitution  and  matters  that  are  properly  subject  to 

legislative  action?  f    f     J   !.uujeci  to 

Name  in  order  of  authority  and  dignity  the  sources  of  "written 

Why  has  New  York  State  a  constitution,  while  New  York  Citv 

has  not?  ^ 

13.  Name  some  congressional  laws  passed  within  recent  years 

14.  What  laws  are  superior  to  a  state  constitution  ? 

IS    Name  some  laws  passed  by  the  legislature  of  your  state  within 
recent  years. 


9. 
10. 


II. 


12. 


CHAPTER  III 


THE  UNWRITTEN  LAW 


§  15.    Definition 

To  the  layman,  perhaps,  the  term  "unwritten  law"  is  some- 
what misleading.    It  is  called  unwritten  law  because  there  was 
a  time  when  it  was  not  written.    As  soon  as  men  commenced 
to  live  in  com.munities  they  found  it  necessary  to  conduct  their 
intercourse  and  dealings  according  to  rules,  and  these  customs 
or  uniform  methods  of  doing  things  are  supposed  to  be  the 
foundation  of  what  is  now  called  the  "common"  or  "unwritten 
law."    For  instance,  when  vehicles  meet  it  is  the  custom  in  this 
country  to  turn  to  the  right.    This  custom  is  not  the  enactment 
of  any  legislature,  and  yet  it  is  practically  a  law,  for  if  anyone 
driving  a  vehicle  failed  to  observe  it  he  would  be  liable  for  any 
damage  that  resulted.    It  might  be  possible  to  find  cases  where 
this  particular  matter  had  come  up  and  received  the  ratification 
of  a  court  decision,  but  in  such  cases  the  court  did  not  make 
either  the  custom  or  the  law;  it  merely  recognized  that  the 
custom  was  general  and  hence  had  the  force  of  law.    That  is, 
the  court  recognizes  the  custom  as  law,  because  men  have  acted 
in  one  way  until  that  way  has  become  a  rule  of  action;  the 
court  is  bound  by  it  although  there  is  no  written  record.    When 
so  recognized  by  a  court,  it  would  be  placed  upon  the  court 
records  and  so  would  actually  be  written  down,  yet  it  is  still 
called  "unwritten  law"  because  it  is  based  on  the  earlier  un- 
written custom  instead  of  upon  legislative  enactment.  Lawyers 
distinguish  these  classes  by  the   Latin  terms  lex  scripta — 
written  law — and  lex  non  scripta — unwritten  law. 

IS 


1 6 


THE  LAW  OF  THE  LAND 


§  i6.    The  Doctrine  of  Precedents 

The  courts  do  more  than  record  customs ;  they  create  law 
by  decisions  that  then  become  precedents.  In  primitive  days 
when  men  had  differences  of  opinion  they  would  get  someone 
older  and  supposedly  wiser  than  the  rest,  to  arbitrate  or  decide 
the  matter.  When  a  given  matter  had  once  been  decided  in 
a  certain  way,  the  inhabitants  of  the  country  would  shape  their 
conduct  according  to  this  decision;  it  would  be  a  precedent 
for  future  action  and  future  decisions  and  in  this  way  would 
become  part  of  the  unwritten  law.  Gradually,  as  civilization 
increased  and  these  precedents  accumulated,  a  "body"  of  un- 
written law  grew  up,  founded  partly  on  customs  and  partly 
on  precedents  established  by  the  courts. 

Moreover,  if  a  question  came  before  one  of  these  early 
courts  and  no  custom  could  be  found  on  which  to  base  the 
decision  and  no  precedent  to  guide  it,  the  judge  would  decide 
according  to  his  ideas  of  right  and  justice  and  thus  would  add 
a  new  item  to  the  sum  of  this  unwritten  law,  which  in  turn 
would  become  a  precedent  for  later  cases  like  it.  England  has 
been  eulogized  by  its  poet  laureate  as: 

A  land  of  settled  government, 
A  land  of  old  and  fair  renown. 
Where  Freedom  broadens  slowly  down, 
From  precedent  to  precedent. 

§17.    Court  Reports 

In  the  old  days  when  writing  was  a  rare  accomplishment, 
individual  lawyers  used  to  make  their  own  notes  of  cases  in 
what  were  called  "Common-Place  Books,"  which  they  would 
use  as  authorities  when  similar  cases  were  tried.  In  this  way 
there  grew  up  the  custom  of  making  court  reports.  Today 
the  decisions  of  the  courts  are  most  carefully  recorded  and 
published,  and  the  court  reports  are  the  greatest  repositories 
of  this  so-called  "unwritten  law." 


THE  UNWRITTEN  LAW 


17 


§  18.    The  Volumes  of  Reports 

The  difficulty  in  our  country  at  the  present  time  is  that 
we  have  over  forty-eight  different  and  independent  systems  of 
courts,  all  grinding  out  decisions,  which  are  recorded  and 
published  in  long  rows  of  volumes.  In  the  first  place  the 
number  of  reports  has  become  so  great  that  it  is  impossible 
for  even  the  most  industrious  lawyer  to  keep  up  with  them. 
The  existing  law  reports  of  this  country  fill  thousands  of 
volumes,  and  every  year  they  are  growing  in  number  and 
complexity.  In  the  second  place,  there  are  forty-eight  separate 
jurisdictions,  the  decisions  do  not  always  harmonize,  and  then 
occurs  a  conflict  of  laws. 

Lawyers  depend  on  large  law  libraries  to  which  they  have 
access,  kept  up  usually  on  a  co-operative  basis.  Meanwhile, 
they  subscribe  for  volumes  of  digests  and  use  encyclopedias  of 
law  to  guide  them  in  their  searches  through  this  ever-increas- 
ing maze  of  judicial  decisions.  In  each  state  the  decisions  of 
the  highest  state  courts  are  paramount,  and  the  lawyers  in  the 
state  try  to  familiarize  themselves  with  at  least  the  trend  of 
these  decisions. 

Whenever  political,  economic,  and  social  conditions  change 
so  radically  that  the  decisions  of  the  higher  courts  become 
unjust  or  restrict  legitimate  activity  too  much,  the  state  legisla- 
ture interferes  and  enacts  laws  that  supersede  the  judicial 
decisions.  In  other  words,  the  written  law  prescribed  by 
the  legislature  overrules  the  unwritten  law  that  comes  from 
the  decisions  of  the  court. 

§  19.    Citations 

When  a  lawyer  wishes  to  use  a  case  in  argument,  he  cites 
it  by  naming  the  parties,  the  number  and  name  of  the  report, 
and  the  page  on  which  the  case  is  found.  Only  by  practice 
can  a  person  know,  when  a  case  reference  is  given,  what  court 


i8 


THE  LAW  OF  THE  LAND 


decision  the  author  cites.  It  is  no  small  part  of  a  lawyer's 
training  to  know  where  to  find  the  decision  he  wants.  This 
matter  of  finding  cited  cases  is  explained  in  Appendix  B. 

§20.    The  Common  Ltaw 

The  unwritten  law  was  also  called,  as  has  been  said,  the 
"common  law,"  and  old-school  lawyers  were  fond  of  extolling 
it  as  the  perfection  of  human  wisdom.  When  this  country 
broke  away  from  England  at  the  time  of  the  Revolution  we 
retained  the  English  common  law,  and  it  became  the  founda- 
tion of  the  general  system  of  law  prevailing  throughout  most 
of  this  country.  In  Louisiana,  however,  and  to  a  certain  ex- 
tent in  Texas  and  California,  the  so-called  Roman  or  "civil 
law"  was  introduced  and  became  largely  the  foundation  for 
the  systems  of  law  in  those  states.  This  system  based  on  the 
old  Roman  law,  prevails  in  Italy,  France,  and  other  Latin 
countries  in  Europe  and  is  utilized  by  the  Teutonic  peoples  as 
well.  The  EngHsh  law  is  indebted  to  the  Roman  system  more 
than  English  common  law  advocates  are  willing  to  admit,  and 
it  might  have  been  better  had  more  been  borrowed. 

The  original  English  common  law  was  a  harsh  and  bar- 
barous code,  having  little  or  no  consideration  for  the  rights 
of  women  and  children  and  making  man  the  tyrant  of  the 
family.  Any  infractions  of  its  provisions  were  punished  with 
drastic  penalties.  The  smallest  theft  by  man,  woman,  or  child, 
was  punished  by  death.  At  the  present  time  most  of  the 
harsher  features  of  the  common  law  have  been  eliminated. 
Juries  refused  to  convict  prisoners  on  account  of  the  cruel 
penalties,  and  the  law  has  been  modified  by  numberless  legisla- 
tive enactments  and  expanded  by  judicial  construction,  to  fit 
a  more  civilized  and  cultivated  society  than  that  in  which  it 
originated. 

It  is  evident  that  the  term  "unwritten  law"  covers  a  wider 
field  than  "common  law."    Therefore  it  is  used  in  this  work 


THE  UNWRITTEN  LAW 


19 


to  designate  the  law  that  is  contained  in  the  reports  of  the 
courts. 

§21.    Law-Merchant  and  Commercial  Law 

The  law-merchant  was  originally  a  part  of  the  general 
law  of  nations,  being  concerned  with  bills  of  exchange  and 
the  like,  freights,  average,  demurrage,  insurance,  bottomry  and 
other  matters  of  the  same  nature  pertaining  to  commerce. 

Chancellor  Kent  in  his  commentaries  says  that  the  law- 
merchant  "consists  of  certain  principles  of  equity  and  usages 
of  trade,  which  general  convenience  and  a  common  sense  of 
justice  had  established  to  regulate  the  dealings  of  merchants 
and  mariners  in  all  the  commercial  countries  of  the  civilized 
world." 

Blackstone  refers  to  it  as  "The  particular  system  of  cus- 
toms used  only  among  one  set  of  the  king's  subjects,  called 
the  custom  of  merchants,  or  lex  mercatoria:  which,  however 
diflFerent  from  the  general  rules  of  the  common  law,  is  yet 
ingrafted  into  it,  and  made  a  part  of  it;  being  allowed,  for 
the  benefit  of  trade,  to  be  of  the  utmost  validity  in  all  com- 
mercial transactions." 

While  the  law-merchant  had  its  origin  in  international 
usage,  as  a  matter  of  fact  it  was  incorporated  into  and  made 
a  part  of  the  body  of  the  common  law  of  England  and  was  with 
it  transplanted  to  this  country  and  made  a  part  of  our  own  com- 
mon law  so  far  as  it  was  applicable  to  our  conditions.  In  later 
years  it  has  been  largely  extended  and  modified  by  statute  but 
still  remains  part  of  our  unwritten  law  and  as  such  governs 
in  the  present  course  of  trade  and  business. 

The  term  law-merchant  is  generally  applied  to  the  old  laws 
or  customs  of  merchants.  The  corresponding  modem  term 
is  commercial  law,  which  is  defined  as  the  body  of  principles 
and  rules,  drawn  chiefly  from  the  customs  of  merchants,  by 
which  the  rights  and  obligations  arising  in  commercial  transac- 


Ir ' 


20 


THE  LAW  OF  THE  LAND 


tions  are  determined.     It  is  also  defined  simply  as  the  law 
applicable  to  commercial  transactions. 

§  aa.    Unconstitutional  Laws 

It  frequently  happens  that  a  legislative  enactment  designed 
to  overrule  some  objectionable  decision  of  the  courts  comes 
into  conflict  with  a  provision  of  the  state  constitution  or  of  the 
United  States  Constitution  and  the  courts  may  decide  this  new 
law  to  be  unconstitutional.  If  the  people  in  the  state  should 
still  desire  to  maintain  the  legislative  enactment,  they  would 
have  to  amend  the  state  constitution  except  in  states,  Colorado 
for  example,  whdse  constitution  provides  for  the  'Recall  of 
judicial  decisions"  by  the  vote  of  the  people.  So  far  as  the 
writer  knows,  however,  this  power  has  never  been  invoked, 
and  indeed  it  seems  a  dangerous  right  since  popular  passion 
might  easily  be  swayed  to  commit  on  occasion,  in  this  way, 
great  injustice.  In  case  the  law  were  in  conflict  with  the 
Constitution  of  the  United  States,  the  people  must  either 
submit  or  else  undertake  the  very  arduous  task  of  stirring  up 
all  the  people  in  the  country  to  amend  the  Federal  Con- 
stitution. 

A  notable  instance  of  this  is  the  income  tax  law,  which 
was  passed  by  Congress  but  declared  unconstitutional  by  the 
Supreme  Court.  Then  the  Constitution  was  amended,  where- 
upon Congress  passed  the  present  income  tax  law  which,  with 
its  amendments,  will  doubtless  be  a  permanent  feature  of  our 
system  of  taxation. 

§33.    The  Recall  of  Judges 

Within  the  last  few  years  many  persons  have  become  im- 
patient with  the  slow  process  of  changing  the  Constitution 
This  has  led  them  to  advocate,  as  a  short  cut  to  securing  better 
laws,  the  recall,  that  is,  the  dismissal,  of  any  judges  who  decide 
that  popular  laws  are  unconstitutional.    If  this  law  went  into 


THE  UNWRITTEN  LAW 


21 


effect  any  judge  who  rendered  decisions  opposed  by  the  major- 
ity of  the  voters  could  be  recalled  and  a  more  subservient 
arbitrator  elected.  For  several  reasons  such  a  procedure  seems 
unwise.  It  would  be  better  to  facilitate  the  process  of  amend- 
ing the  Constitution  than  to  seek  judges  who  will  disregard 
the  plain  letter  of  existing  law  and  will  support,  as  legal,  laws 
that  plainly  are  not  in  harmony  with  the  provisions  of  the 
Constitution.  But  this  is  too  large  a  subject  for  treatment 
here. 


Review  Questions 

1.  Give  some  examples  of  custom-made  law. 

2.  When  a  custom  is  recognized  by  a  court  and  its  decision  is 

recorded,  what  is  the  effect? 

3.  What  is  the  argument  for  observing  precedents? 

4.  What  is  the  disadvantage  of  our  numerous  volumes  of  reports? 

5.  In  what  cases  do  legislative  enactments  supersede  court  deci- 

sions ? 

6.  Give  the  arguments  for  and  against  the  recall  of  judges, 

7.  What  is  the  relation  between  the  common  law  and  statute  law? 

8.  Where  do  we  get  our  common  law? 

9.  What  countries  have  laws  most  nearly  like  ours? 


CHAPTER  IV 

LAW  AND  EQUITY 

§24.    Remedial  Law 

When  anyone  has  suffered  wrong  and  his  legal  rights  have 
been  infringed,  he  seeks  a  remedy.  Jhe  law  itself  may  be 
ideal,  but  if  the  machinery  to  enforce  the  rights  defined  by 
the  law  be  defective,  abstract  perfection  will  avail  but  little. 
Therefore  a  study  of  what  is  called  remedial  law  is  necessary 
before  we  can  tell  what  real  help  we  are  likely  to  obtain  from 
the  law.  The  "law's  delay*'  is  proverbial.  In  all  matters  of 
judicial  procedure  there  has  always  been  a  tendency  to  formal- 
ity and  "red  tape."  Too  often  this  tendency  becomes  so  ex- 
cessive that  it  nullifies  the  remedy  and  results  in  a  denial  of 
justice.  The  remedy  may  be  so  costly  and  long  deferred  that 
it  were  better  left  unsought.  The  man  with  limited  means  is 
too  often,  on  this  account,  barred  from  seeking  justice. 

Suits  or  actions  to  redress  wrongs  or  to  enforce  rights  are 
classified  as  suits  at  law  and  suits  in  equity.  It  is  not  easy  to 
explain  briefly  the  distinction  between  the  terms  "law"  and 
"equity"  as  they  are  used  in  our  administration  of  justice. 
The  two  words  are  used  in  this  connection  without  any  refer- 
ence to  the  ordinary  meaning  attached  to  them.  A  real, 
technical  distinction  exists  between  a  case  at  law  and  a  case 
in  equity  which  a  lawyer  must  thoroughly  understand. 
Whether  it  would  pay  a  business  man  to  study  out  the  exact 
and  full  distinction  between  the  two  is  doubtful.  But,  as  it  is 
impossible  for  a  lawyer  to  avoid  using  the  terms  in  their 
technical  sense,  it  is  important  that  the  layman  should  have 
a  general  idea  of  what  the  lawyer  means,  so  that  the  plain 

22 


LAW  AND  EQUITY 


23 


man  may  not  be  misled  by  confusing  the  ordinary  English  use 
of  the  words  with  the  legal  signification. 

§  25.    Equity  in  the  Legal  Sense 

In  England  many  years  ago  the  proceedings  at  law  had 
become  so  cumbersome  and  so  limited  in  scope  that  it  was 
difficult  to  obtain  justice  in  the  courts  of  common  law.  King 
Henry  VII  then  provided  that  in  those  cases  in  which  the 
common  law  did  not  afford  a  remedy,  relief  could  be  obtained 
by  applying  directly  to  his  chancellor.  This  official,  who  was 
also  a  dignitary  of  the  church,  favored  the  Roman  or  civil 
law  and  adopted  a  procedure  founded  on  that  law  in  contra- 
distinction to  the  common  law.  Such  a  procedure  before  the 
chancellor  was  called  a  suit  in  "chancery*'  or  "equity,"  as  dis- 
tinguished from  the  procedure  "at  common  law"  or  simply 
"at  law."  It  should  be  noted,  however,  that  while  at  first  it 
was  simpler  to  bring  a  suit  in  equity  than  at  law,  this  dis- 
tinction soon  vanished  and  equity  proceedings  became  even 
more  complex  and  technical  than  the  procedure  at  law.  The 
chancellor,  however,  gave  relief  in  many  cases  for  which  the 
common  law  gave  no  remedy.  The  common  law  was  adapted 
to  a  simple  life  and  a  crude  social  system.  As  the  English 
people  advanced  the  deficiencies  of  the  common  law  were 
manifest  and  the  introduction  of  the  courts  of  equity  was  a 
long  step  in  legal  reform.  The  two  distinct  systems  both  con- 
tinued; the  procedure  was  different,  the  rules  were  different, 
and  the  relief  given  was  different.  The  lawyers  who  practiced 
before  the  chancellor  were  called  solicitors;  the  lawyers  who 
appeared  in  the  common  law  courts  were  counselors  or 
barristers. 

In  equity  the  remedies  are  different  from  those  provided 
by  a  suit  at  law.  To  illustrate  the  difference,  if  anyone  breaks 
down  your  fences  and  makes  a  road  across  your  property,  at 
law  you  can  sue  only  for  damages;  in  equity  you  can  ask  an 


M 


24 


THE  LAW  OF  THE  LAND 


LAW  AND  EQUITY 


25 


injunction  restraining  the  offender  from  further  trespass,  and 
also  recover  for  any  damage  he  may  have  done. 

§  a6.    Suits  at  Law  and  in  Equity 

The  distinction  between  law  and  equity  was  brought  to  this 
country  and  as  a  result  there  are  in  all  the  states  the  two 
divisions  of  the  work  of  the  courts  and  the  two  methods  of 
bringing  suit.  In  a  few  states  the  law  and  the  equity  courts 
are  kept  entirely  separate,  as  is  the  case  in  New  Jersey ;  and 
in  these  states  the  public  realizes  more  readily  the  real  dif- 
ference between  law  and  equity  administration.  But  in  most 
states  today,  the  actions  are  brought  in  the  same  courts,  the 
only  differences  being  in  the  preliminary  procedure,  in  the 
remedies  which  the  courts  grant,  and  in  the  fact  that  in  most 
cases  at  law  there  is  a  jury  trial,  while  in  equity  cases  a  judge 
or  judges  alone  hear  the  case. 

A  court  of  law  hears  both  civil  and  criminal  cases.  Civil 
cases  are  the  ordinary  suits  about  contracts  and  property  rights 
and  are  brought  by  private  parties  against  other  private  parties. 
Criminal  cases  are  suits  brought  by  the  state  itself  against 
those  who  are  accused  of  having  broken  the  law,  and  who 
are  punishable  by  fine  or  imprisonment.  In  such  a  case  the 
fine  goes  to  the  state.    (See  Chapter  V.) 

A  court  of  equity  hears  only  civil  cases.  If  a  person  is 
interfering  with  another's  rights,  a  court  of  equity  will  grant 
an  injunction  forbidding  him  to  do  so  in  the  future,  and  will 
at  the  same  time  make  him  pay  damages  to  the  injured  party 
for  the  wrong  which  has  already  been  done. 

§27.    Bringing  a  Suit  at  Law 

When  A  refuses  to  pay  a  debt  that  is  due,  or  fails  to  do 
what  he  has  contracted  to  do,  or  by  his  negligence  or  wrong- 
doing has  caused  damage  to  B,  if  B  wishes  to  bring  suit  against 
A  he  employs  a  lawyer  who  prepares  a  written  statement 


».. 


setting  forth  his  client's  cause  of  action.  This  paper  is  called 
a  complaint  and  must  be  served  upon  A.  At  the  same  time 
with  or  before  the  service  of  the  complaint,  B  must  serve  a 
notice  or  summons  on  A  requiring  him  to  answer  within  a 
certain  number  of  days.  If  A  does  not  appear,  the  court  will 
consider  that  A  does  not  mean  to  defend  and,  in  some  in- 
stances, if  the  claim  is  definite,  it  will  grant  a  judgment  by 
default  against  A  and  in  favor  of  B,  without  a  trial  or  any- 
thing more  than  a  sworn  complaint  to  prove  the  case. 

Service  of  a  summons  must  be  made  personally  upon  a 
defendant  except: 

1.  Where  the  person  is  an  infant,  it  may  be  delivered 

to  a  parent  or  guardian. 

2.  Where  the  person  is  adjudged  insane  or  incompetent 

to  manage  his  own  affairs,  it  may  be  delivered  to 
a  guardian  or  to  the  defendant. 

3.  Where  a  person,  firm,  or  corporation  is  without  the 

state,  simimons  may  be  served  by  publication  of 
the  summons  in  two  newspapers,  most  likely  to  be 
seen  by  the  defendant,  for  a  specified  time  of  not 
less  than  once  a  week  for  six  successive  weeks. 
(The  details  given  are  for  publication  in  New 
York.    They  vary  in  the  different  states.) 

The  party  bringing  the  action  is  called  the  "plaintiff,"  or 
in  some  states  the  "complainant."  The  party  against  whom 
the  action  is  brought  is  called  the  "defendant."  If  the  de- 
fendant does  not  wish  to  allow  judgment  to  go  against  him  by 
default,  he  or  his  lawyer  must  within  the  time  set  serve  an 
answer  to  the  other  party's  complaint  against  him.  In  this 
paper  the  defendant  usually  brings  forward  any  cause  of  action 
which  he  may  have  against  the  other  party.  This  is  called  a 
counterclaim.  The  written  papers  by  which  the  parties  bring 
their  cause  before  the  court  are  called  "pleadings."     If  the 


96 


THE  LAW  OF  THE  LAND 


defendant  denies  the  facts  alleged  or  sets  up  a  counterclaim, 
the  pleading  is  called  an  answer. 

The  other  party  then  replies  to  the  counterclaim.  There 
may  in  some  states  be  several  such  replies  after  the  service  of 
the  complaint  The  procedure  depends  on  the  law  of  the 
particular  state  where  the  action  is  being  brought.  Each  party 
must  serve  a  copy  of  each  paper  in  the  action  on  the  other 
party  or  his  attorney. 

If  what  has  been  stated  in  the  complaint  does  not  make 
a  legal  cause  of  action,  tlie  defendant  through  his  lawyer  may 
object  to  it  by  filing  a  demurrer.  A  demurrer  objects  to  the 
complaint  on  legal  grounds ;  for  example,  that  it  is  not  brought 
in  the  right  court,  or  that  the  facts  alleged,  even  if  true,  do 
not  constitute  a  cause  of  action. 

Then  the  matter  of  the  demurrer  comes  up  before  the 
court.  It  is  argued  by  the  lawyers  on  each  side,  and  if  the 
court  decides  that  the  demurrer  presented  by  the  defendant  is 
well  taken,  the  complaint  is  dismissed.  The  plaintiff  can  then 
usually  get  leave  (by  paying  the  costs  up  to  date)  to  file  a  new 
complaint  in  which  his  lawyer  will  try  to  avoid  the  particular 
legal  difficulty. 

If  the  court  decides,  however,  that  the  demurrer  is  not 
well  taken,  it  is  dismissed,  and  this  leaves  the  defendant  to 
answer  the  complaint  as  to  the  facts,  that  is,  as  to  the  matters 
which  have  been  alleged  on  the  part  of  the  plaintiff  and  denied 
on  the  part  of  the  defendant. 

The  foregoing  statement  of  proceedings  before  trial  pre- 
supposes very  simple  proceedings,  but  usually  there  are  re- 
quests to  amend  and  much  incidental  procedure,  which  tend 
to  delay  the  trial  of  the  main  issue. 

§  38.    Trial  at  Law 

A¥hen  the  parties  have  finaHy  come  to  an  issue,  i.e.,  when 
the  plaintiff  has  alleged  certain  things  and  the  defendant  has 


LAW  AND  EQUITY 


27 


denied  them  or  has  interposed  a  defense,  then  the  case  is  set 
down  for  trial,  and  takes  its  place  on  the  court  calendar. 
When  cases  that  are  ahead  of  it  on  the  calendar  have  been 
tried,  or  postponed,  the  case  is  called,  and  the  lawyers  on  each 
side  are  asked  if  they  are  ready.  When  both  sides  are  ready, 
or  have  no  excuse  for  longer  delay,  a  jury  is  assembled  and 
the  judge  proceeds  with  the  case.  In  a  court  of  law  a  party 
has  a  right  to  have  a  jury  decide  any  disputed  facts. 

The  witnesses  for  each  side  are  sworn  and  testify,  then 
the  case  is  argued  by  counsel  for  each  party  and  goes  to  a  jury 
to  decide  or  is  decided  by  the  judge,  or  is  taken  under  advise- 
ment by  the  judge,  who  will  give  his  decision  after  due  con- 
sideration. If  the  case  goes  to  a  jury,  the  jurymen  are  placed 
in  the  custody  of  a  court  officer  until  they  reach  a  decision 
or  find  that  they  cannot  agree.  If  the  judge  is  to  decide  the 
case  and  takes  it  under  advisement,  it  may  be  days,  weeks,  or 
months  before  he  will  render  his  decision. 

Since  a  jury  is  composed  of  human  beings,  it  is  likely  to 
show  certain  very  human  characteristics  in  its  decisions.  The 
sympathies  of  the  jury  are  usually  with  the  under  dog,  whether 
he  is  plaintiff  or  defendant.  Often  the  plaintiff,  by  the  mere 
fact  of  going  to  court  with  his  troubles  and  then  by  being 
heard  first,  has  the  better  chance.  If  one  party  is  a  corpora- 
tion, the  jury  is  inclined  to  regard  it  as  a  soulless  oppressor, 
and  to  award  damages  in  favor  of  the  poor  workingman, 
widow,  etc.,  whom  the  corporation  is  supposed  to  be  injuring. 

Very  frequently  clever  and  unscrupulous  lawyers  get  in 
some  touch  to  appeal  to  the  sympathies  of  the  jury,  as  a  photo- 
graph of  an  injured  man's  wife  and  children,  etc.  These  are 
usually  ruled  out  by  the  court,  but  the  effect  on  the  jury  has 
been  gained  just  the  same.  It  is  to  be  remembered  that  if  one 
man  on  the  jury  is  stubborn,  prejudiced,  or  dishonest,  he  can 
prevent  a  verdict  and  the  whole  expense  and  trouble  of  the 
trial  has  to  be  repeated.    The  law  frequently  breaks  down  in 


28 


THE  LAW  OF  THE  LAND 


vindicating  rights  because  of  the  imperfect  workings  of  the 
jury  system. 

Note: 

I.     Consider  all  the  chances  before  bringing  a  lawsuit. 

§  ag.    Bringing  a  Suit  in  Equity 

The  outline  given  applies  to  a  court  of  law.  If  the  court 
is  a  court  of  equity  jurisdiction,  the  procedure  is  essentially 
the  same  except  that  the  first  statement  may  be  called  a  peti- 
tion or  a  bill  in  equity.  In  New  York  complaints  are  also 
used  in  equity.  All  procedure  in  courts  follows  generally  the 
lines  laid  down,  with  many  variations  as  to  details  and  inci- 
dentals. 

A  suit  in  equity  can  be  brought  only  when  the  party  cannot 
obtain  justice  at  law.  The  other  party  must  answer  the  peti- 
tion or  the  bill.  Copies  of  all  papers  must  be  served  on  the 
opposite  party  by  the  party  making  the  charges. 

In  a  suit  in  equity,  only  a  judge,  or  several  judges,  hear  the 
case.  For  this  reason  a  court  of  equity  is  not  so  strict  about 
keeping  out  evidence  that  does  not  properly  have  anything  to 
do  with  the  case,  or  that  might  prejudice  a  jury.  The  judge  is 
supposed  to  know  the  law  and  to  be  guided  only  by  such  evi- 
dence as  ought  to  be  allowed  to  affect  the  decision  of  the  case. 

A  court  of  equity  tries  to  give  a  remedy  to  fit  the  nature 
of  the  wrong  that  is  being  done.  If  the  wrong  consists  in  a 
refusal  to  perform  a  contract,  the  court  will,  in  some  instances 
where  the  contract  should  be  performed,  compel  the  offending 
party  to  carry  out  his  agreement.  (See  Chapter  XII.)  If  the 
wrong  alleged  consists  in  the  defendant's  continuing  to  do 
anything  which  is  injuring  another,  the  court  will  issue  wha* 
is  called  an  injunction  forbidding  the  continuance  of  the  in- 
jurious conduct  Practically  speaking,  however,  the  courts  are 
chary  of  granting  an  injunction  where  it  may  be  avoided. 

It  is  useless  to  attempt  to  bring  an  action  in  equity  unless 


LAW  AND  EQUITY 


29 


the  party  is  certain  that  he  can  prove  to  the  court  that  the 
damages  which  he  can  obtain  at  law  will  not  compensate  him 
for  his  injury,  and  unless  he  is  willing  to  do  everything  which 
the  court  may  require  from  him  in  the  interests  of  justice. 
The  maxim  is  that  he  who  seeks  equity  must  do  equity. 

Another  maxim  in  equity  is  that  he  who  comes  into  a  court 
of  equity  must  come  with  clean  hands,  i.e.,  if  the  complainant 
alleges  fraud,  he  must  show  that  he  has  been  scrupulously  fair 
in  all  his  own  dealings. 

If  the  party  resorts  to  equity  when  he  should  have  in- 
stituted an  action  at  law,  he  will  merely  find  that  he  is  obliged 
to  go  to  the  added  expense  of  bringing  action  at  law.  The 
practice  in  equity  is  no  less  complicated  than  that  at  law. 

§  30.    Appeals  to  a  Higher  Court 

The  decision  of  a  trial  may  be  appealed  from  by  the  dis- 
satisfied party.  The  unsuccessful  litigant  has  to  pay  the  dam- 
ages adjudged  to  be  due  his  opponent,  the  costs  of  the  suit,  and 
the  fees  of  his  own  lawyer.  His  fighting  blood  is  stirred  by 
the  evidence  that  brings  to  mind  the  original  dispute  and  the 
perverseness  of  the  opposite  party,  by  the  arguments  of  the 
counsel  on  each  side,  and  by  the  failure  of  the  court  and  jury 
to  give  them  the  weight  he  feels  they  have,  and  he  feels  as  if 
he  would  spend  all  he  has  to  vindicate  himself  and  to  punish 
those  who  have  wronged  him. 

His  lawyer  feels  much  the  same  way,  and,  as  he  is  paid 
for  appealing  instead  of  having  to  pay,  he  can  better  afford  to 
indulge  his  feelings.  Usually  the  first  thing  is  to  file  excep- 
tions to  the  alleged  irregularities  in  the  trial ;  that  is,  happen- 
ings of  the  following  nature: 

That  evidence  was  admitted  which  should  have  been  shut 
out. 

That  evidence  was  rejected  which  should  have  been  ad- 
mitted. 


no  THE  LAW  OF  THE  LAND 

That  questions  were  allowed  which  should  have  been 

barred. 
That  questions  were  disallowed  which  should  have  been 

allowed. 
That  the  judge  charged  the  jury  in  a  way  he  should  not 

have  charged  it. 
That  the  judge  refused  to  charge  the  jury  as  requested 

and  as  he  should  have  charged  it. 
That  the  verdict  was  excessive,  or  inadequate,  or  not 

supported  by  the  evidence. 

Then  a  motion  is  made  for  a  new  trial  and,  if  this  is 
overruled,  counsel  announces  that  he  will  appeal.  The  losing 
party  cannot  commence  a  new  action.  He  is  barred  from  any 
such  proceeding,  otherwise  a  wealthy  plaintiff  could  ruin  his 
opponent  by  continued  new  actions.  He  can,  though,  in  most 
cases  appeal  to  a  higher  court. 

The  appeal  is  a  costly  and  complicated  proceeding.     All 
of  the  papers  and  much,  in  some  cases  all,  of  the  evidence 
must  be  printed.    Then  the  arguments  of  each  of  the  opposing 
counsel,  ironically  termed  "briefs,"  are  printed.    After  more 
delay  and  often  much  sparring  of  counsel  over  points  of 
procedure,  the  case  will  take  its  place  on  an  appeal  docket  and 
in  due  course  will  be  reached  by  the  appellate  court.     Next 
the  case  is  heard,  which  means  that  counsel  for  both  sides 
appear  and  argue  the  case  on  appeal.    Finally  the  court  takes 
it  under  consideration  and  if  a  new  trial  is  granted  it  must 
be  tried  again  in  the  original  court.     In  most  states  there 
may  be  indefinite  appeals  until  the  case  has  reached  the  court 
of  last  resort,  been  decided  there  on  the  last  technicality,  and 
a  rehearing  has  been  asked  for  and  refused.    There  is  always 
delay  between  appeals,  and  it  is  entirely  possible  for  a  law- 
suit to  go  on  for  years  and  become  an  heirloom,  which  is 
handed  on  from  generation  to  generation.     It  will  be  seen 


LAW  AND  EQUITY 


31 


that  the  person  or  the  corporation  with  the  longest  purse  has 
a  great  advantage.  Such  a  one  can  employ  more  experienced 
and  abler  counsel  and  can  stand  the  mounting  costs  better  than 
the  person  who  has  nothing  but  a  just  cause. 

Attempts  have  been  made  from  time  to  time  to  simplify 
procedure  and  to  make  litigation  less  costly  and  less  dilatory, 
but  so  far  without  any  great  measure  of  success.  To  laymen 
both  courts  and  counsel  often  appear  much  more  concerned 
in  observing  the  rules  of  the  game  than  in  administering 
justice  as  between  man  and  man.  As  stated  in  one  of  our  legal 
periodicals:  ^ 

While  every  other  profession  has  been  practically  made 
over  in  the  past  twenty-five  years,  the  conservatism  of  the 
legal  profession  has  stood  in  the  way  of  substantial  changes 
in  the  rules  of  procedure  and  practice. 


>» 


Elihu  Root,  in  the  foreword  to  "Justice  and  the  Poor' 
states : 

We  have  had  in  the  main  just  laws  and  honest  courts  to 
which  people — poor  as  well  as  rich — could  repair  to  obtain 
justice.  But  the  rapid  growth  of  great  cities,  the  enormous 
masses  of  immigrants  (many  of  them  ignorant  of  our 
language),  and  the  greatly  increased  complications  of  life 
have  created  conditions  under  which  the  provisions  for  ob- 
taining justice  which  were  formerly  sufficient  are  sufficient 
no  longer.  I  think  the  true  criticism  which  we  should  make 
upon  our  own  conduct  is  that  we  have  been  so  busy  about 
our  individual  affairs  that  we  have  been  slow  to  appreciate 
the  changes  of  conditions  which  to  so  great  an  extent  have 
put  justice  beyond  the  reach  of  the  poor. 

Ex-President  Taft,  in  an  address  before  the  Virginia  Bar 
Association,  said: 

Of  all  the  questions  which  are  before  the  American 
people,  I  regard  no  one  as  more  important  than  the  improve- 


^  Case  &  Comment' for  July,  1917. 


$2 


11 


THE  LAW  OF  THE  LAND 

mcnt  of  the  administration  of  justice.  We  must  make  it  so 
that  the  poor  man  will  have  as  nearly  as  possible  an  equal 
opportunity  in  litigating  as  the  rich  man,  and  under  present 
conditions,  ashamed  as  we  may  be  of  it,  this  is  not  the  fact. 

Note: 


LAW  AND  EQUITY 


33 


I. 


Before  becoming  involved  in  litigation  reckon  the 
cost,  to  the  limit  of  the  last  appeal. 


§  31.    Advisability  of  Litigation 

There  are  circumstances  under  which  it  is  necessary  to  go 
to  law,  and  then  its  advisability  is  not  open  to  discussion. 
Such  circtmistances  may  be  compared  with  cases  in  which 
surgical  operations  have  become  imperative.  The  only  ques- 
tion then  is  to  be  sure  that  you  secure  a  skilful  attorney  to 
represent  you.  But  many  cases  arise  where  there  is  strong 
temptation  to  bring  suit,  but  where  it  might  be  more  prudent 
to  compromise  or  settle  by  other  means.  What  follows  applies 
to  these  debatable  cases. 

When  you  feel  that  you  have  been  wronged  and  consult 
a  lawyer,  you  want  him  to  sympathize  with  you,  to  assure 
you  of  the  merits  of  your  case,  and  to  advise  you  to  show 
the  other  party  that  he  cannot  ride  rough-shod  over  you. 
This  is  the  lawyer's  selling  talk  that  you  expect.  You  tell 
him  to  go  ahead  and  cheerfully  give  him  a  check  for  a  few 
himdred,  which  he  says  will  be  plenty  to  keep  things  moving 
until  the  case  comes  to  trial. 

If  instead,  he  tells  you  judicially  that,  while  you  have  a 
good  case,  it  will  save  time  and  money  to  compromise  in 
some  way  rather  than  to  litigate,  you  take  it  as  an  unfriendly 
act,'  grudge  him  his  modest  fee  for  saving  you  a  lawsuit,  and 
tell  your  friends  that  he  is  too  cautious  ever  to  make  much 
at  the  bar.  Next  time  you  have  trouble  you  think  you  will 
find  a  lawyer  with  a  little  more  "sand." 

Lawyers  know  that  most  men  who  consult  them  fed  this 


way.  As  one  lawyer  expressed  himself,  it  is  easier  to  get 
a  $i,ooo  fee  for  trying  a  case  than  $ioo  for  effecting  a  com- 
promise. Therefore  do  not  expect  that  your  lawyer  is  going 
to  punish  himself  to  do  you  an  unwelcome  service.  You  can 
try  this  plan: 

Ask  your  lawyer  to  make  you  an  estimate  of  what  the 
case  will  be  likely  to  cost  in  counsel  fees,  preparation  for 
trial,  court  costs,  and  incidentals.  Then  inquire  as  to  what 
amount  of  your  time  will  be  required  for  consultation,  attend- 
ance on  trial,  waiting  for  the  case  to  be  called,  etc.  Estimate 
what  your  time  is  worth  in  your  business  and  add  to  the 
previous  amount.  Estimate  how  much  thought  and  worry 
you  will  put  into  it  and  how  much  this  will  detract  from  your 
business  efficiency.  Assume  you  get  judgment  in  your  favor 
and  the  case  is  not  appealed.    How  does  the  account  stand? 

You  may  have  a  good  case  and  still  lose  out.  Such  things 
have  happened.  Appeals  are  possibilities.  There  is  a  chance 
of  heavy  costs  and  fees.  Consider  all  eventualities  before  you 
decide  on  your  course. 

Notes: 

I.     Prevention  is  better  than  cure.     "Beware  of  en- 
trance to  a  quarrel." 
Calculate  your  costs  in  advance.    This  discourages 

litigation. 
Tell  your  lawyer  you  would  rather  pay  him  to  keep 
you  out  of  litigation  than  to  win  your  case.     If 
he  is  young  at  the  business  he  may  take  you  at 
your  word. 


2. 


Suggestions  to  Readers 

If  possible,  attend  the  trial  of  a  ciznl  case  before  a  magistrate. 
This  is  the  court  where  suits  for  small  sums  are  brought ;  its  processes 
are  simple  and  rapid.    But  its  procedure  is  typical.    Note  the  function 


u 


THE  LAW  OF*  THE  LAND 


of  the  magistrate,  the  counsel,  the  constable,  marshal,  or  other  officer 
of  the  court.  Note  how  witnesses  are  called,  sworn,  examined, 
cross-examined.  Note  the  arguments  of  counsel.  Then  answer  these 
questions : 

I.  After  hearing  the  witnesses,  how  would  you  have  decided 
the  case? 

After  hearing  the  lawyers  argue,  would  you  have  decided 
otherwise  ? 

Was  the  actual  decision  just? 

Allowing  fair  rates  of  payment  for  the  time  of  the  men 
engaged  in  the  trial,  for  the  judge,  constable,  parties, 
lawyers,  and  witnesses,  how  much  did  the  trial  cost  the 
community?  What  was  the  amount  involved  in  the 
litigation  ? 

5,  Was  the  suit  a  fair  average  as  to  time,  amotmt  involved, 
number  in  attendance,  etc? 

6.  Could  you  devise  any  better  system  for  settling  disputes? 


2. 
4. 


Review  Questions 

1.  Why  is  legal  process  to  redress  a  wrong  usually  unsatisfactory? 

2.  What  is  the  distinction  between  "law"  and  "equity"  ? 

3.  In  your  state  are  there  separate  courts  of  law  and  equity? 

4.  Can  suit  be  brought  against  a  person  without  giving  him  notice  ? 

5.  What  is  the  object  of  the  procedure  in  a  suit  before  trial? 

6.  What  defects  are  there  in  trial  by  jury? 

7/  If  you  were  party  to  a  suit,  would  you  rather  have  it  decided 
by  a  jury  or  by  a  judge?    Why? 

If  a  party  fails  to  get  a  verdict  or  decision  can  he  bring  a 
new  suit? 

What  could  be  done  to  make  justice  cost  less  in  time  and  money? 
Can  you  suggest  any  method  of  judicial  reform? 

Should  a  lawyer  advise  litigation  or  compromise?  What  cir- 
cumstances should  influence  his  advice? 


a 


10, 


CHAPTER  V 


CRIMINAL  LAW 

§  32.    Criminal  Procedure 

Criminal  law  is  administered  in  a  manner  different  from 
the  usual  procedure  at  law  and  in  equity.  The  state  prose- 
cutes for  crime,  and,  while  the  accused  person  is  called  the 
defendant,  there  is  no  plaintiff  save  the  state.  The  designa- 
tion of  a  criminal  case  might  be :  "State  of  Ohio  v.  John  Doe 
(name  of  accused)."  In  the  different  states  there  is  more 
or  less  variation  in  the  administration  of  criminal  law. 

Criminal  prosecutions  are  usually  instituted  by  a  warrant 
sworn  to  by  the  aggrieved  party  before  a  magistrate.  The 
magistrate  then  summons  the  accused  person  to  appear  or 
issues  a  warrant  for  his  arrest.  In  minor  cases  the  magistrate 
tries  the  person,  or  in  some  instances  the  accused  may  demand 
a  trial  by  jury.  Where  the  offense  is  serious,  the  magistrate 
has  only  jurisdiction  to  commit  the  accused  to  await  the 
action  of  the  grand  jury.  In  most  cases  the  accused  person 
is  allowed  to  give  bail  to  insure  his  appearance  when  the  grand 
jury  meets. 

Serious  crimes  must  always  be  prosecuted  by  indictment; 
i.e.,  a  written  accusation  authorized  by  a  grand  jury.  The 
grand  jury  consists  of  eighteen  or  more  men  and  is  convened 
from  time  to  time  in  each  county  to  investigate  any  charges  of 
crime  that  may  be  brought  before  it.  Proceedings  before  a 
grand  jury  are,  of  course,  ex  parte,  i.e.,  only  one  side  is  heard. 
These  proceedings  are  under  the  supervision  of  the  legal 
representative  of  the  state,  the  prosecuting  attorney.  The 
object  of  the  grand  jury  investigation  is  to  ascertain  what 

35 


3^ 


THE  LAW  OF  THE  LAND 


CRIMINAL  LAW 


37 


persons  should  be  tried  before  a  trial  jury  and  whether  the 
evidence  against  people  accused  of  crime  is  sufficient  to  justify 
the  state  in  prosecuting  them.  If  an  indictment  is  foimd 
and  the  person  has  not  been  arrested,  the  authorities  try  to 
arrest  him.  The  names  of  all  who  are  indicted  are  placed  on 
a  criminal  docket  to  await  trial  before  a  trial  jury.  The  grand 
jury  system  is  painfully  cumbrous. 

In  darker  ages  the  criminal  law  was  so  often  used  as  an 
instrument  of  oppression  and  for  the  punishment  of  political 
offenders  and  the  criminal  laws  were  so  cruel,  that  popular 
sympathy  was  with  the  man  accused  of  crime  and  gradually 
he  was  given  various  rights  and  privileges  to  even  up  his 
unequal  contention  with  the  powers  of  the  state.  It  is  not 
unlikely  that  this  process  has  gone  too  far. 

In  many  states  criminal  procedure  has  become  so  complex 
and  so  overridden  with  technicalities  that  any  criminal  who 
can  afford  to  pay  skilful  cotmsel  may  escape  all  penalty  except 
the  large  payments  he  makes  to  his  own  lawyers.  The  diffi- 
culty of  convicting  a  wealthy  criminal  is  the  scandal  of  our 
legal  administration  of  justice. 

On  the  other  hand,  the  criminal  law  as  it  exists  is  in- 
credibly unjust  to  the  poor  and  ignorant.  A  widow  with  a 
dependent  family  started  to  sell  fish  in  New  York  and  failed 
to  cover  them  over  to  protect  them  from  the  flies.  She  was 
arrested  and  fined  two  dollars.  She  did  not  have  so  much 
and  was  sent  to  jail  for  a  short  term,  leaving  her  family  of 
young  children  unattended.* 

If  a  wealthy  young  man  is  arrested  for  speeding,  he  is 
released  on  his  own  recognizance  or  a  deposit  of  cash.  The 
next  day  he  is  fined  twenty-five  dollars,  promptly  writes  a 
check  and  walks  away.  Meanwhile  we  marvel  at  the  growth 
of  anarchistic  thought! 

^Scribner's  Magazine,  July,  1919-     Page  115. 


§  33.    Classes  of  Offenses  Against  the  Criminal  Law 

It  is  well  to  know  that  offenses  against  the  criminal  law 
are  divided  into  two  classes:  felonies  and  misdemeanors,  ac- 
cording to  the  degree  of  the  offense. 

A  felony  is  a  grave  offense,  punishable  by  heavy  penalties. 
A  misdemeanor  is  a  lighter  breach  of  the  law  and  is  punish- 
able by  lesser  penalties. 

Burglary— the  breaking  into  a  dwelling  house  after  dark 
with  criminal  intent— is  a  felony  and  is  punished  by  confine- 
ment in  a  penitentiary.  Driving  an  automobile  too  fast  is  a 
misdemeanor  and  may  be  punished  by  a  fine  or  confinement 
in  the  county  jail. 

Criminal  offenses  are  also  divided  on  another  basis  into 
two  classes:  those  which  are  wrong  in  themselves  and  those 
which  are  wrong  merely  because  the  law  prohibits  them.  In 
order  to  make  this  distinction  easier  to  keep  in  mind,  lawyers 
use  the  Latin  terms  "malum  in  se"  (wrong  in  itself)  and 
''malum  prohibitum"  (wrong  because  it  is  prohibited).  At  the 
present  time  there  are  a  great  many  naturally  indiflFerent 
actions  which  have  been  made  into  '  rimes  by  the  procedure 
of  the  legislature,  and  there  is  such  a  multitude  of  these  laws 
that  it  is  very  hard  for  anyone  even  with  the  best  intentions 
to  avoid  violation  of  the  law  at  some  time. 

§34.    Penalties 

The  penalties  for  violation  of  the  criminal  law  are  fines, 
imprisonment,  and,  for  a  few  offenses,  death.  In  this  country 
the  Constitution  of  the  United  States  prohibits  banishment 
and  forbids  cruel  and  unusual  punishments. 

In  no  direction  is  there  greater  room  for  reform  than  in 
our  treatment  of  criminals.  Many  of  these  are  as  they  are 
by  reason  of  environment  and  lack  of  training.  Others  are 
mental  defectives  who  should  be  humanely  kept  from  tempta- 
tions they  cannot  withstand.    It  may  safely  be  said  that  our 


If 


■HP 


38 


THE  LAW  OF  THE  LAND 


criminal  law  as  it  is  generally  administered  does  not  prevent 
crime,  reform  the  criminal,  or  deter  others  from  crime. 

The  most  dangerous  and  vicious  criminals  are  those  who 
are  mtelligent  and  educated  and  use  these  advantages  to  keep 
clear  of  the  clutches  of  the  law,  while  they  do  things  that  in 
effect  injure  their  fellows  far  more  than  aU  the  burglars  and 
murderers  in  the  country.  These  are  the  "malefactors  of 
great  wealth"  that  roused  Roosevelt's  honest  wrath.  The 
criminal  law  always  lags  behind,  and  enactments  to  check  the 
crimes  of  such  as  these  unfortunately  catch  only  their  clumsy 
imitators. 


Review  Questions 


1.  Who  is  the  plaintiff  in  a  criminal  case?    Why? 

2.  What  is  the  function  of  a  grand  jury? 

3.  Can  you  suggest  any  method  of  improving  the  administration 

of  our  criminal  law? 

4.  If  a  certain  action,  harmless  of  itself,  has  been  made  a  crime, 

does  it  thereby  become  morally  wrong? 

5.  If  a  man  is  willing  to  pay  the  penalty,  say  for  speeding,  does 

that  justify  him  in  disregarding  the  law? 
4    What  are  the  two  classes  of  offenses  against  the  criminal  law  ? 

Give  an  example  of  each. 
7.    Outline  the  usual  criminal  procedure. 

a    What  is  the  primary  object  of  legal  penalties  for  crime:   (i) 
retaliation,  (2)  protection  of  the  community,  or  (3)  the  re- 
formation of  the  criminal?     What  should  be  the  object,  or 
objects  of  the  criminal  law? 
9.    Which  are  the  greater  deterrents  of  crime— severe  penalties,  or 
more  moderate  punishments?    Why? 


PART  II 
CONTRACTS 


CHAPTER  VI 

ESSENTIAL  FEATURES  OF  A  CONTRACT^ 

§  35.    Introductory 

Civilized  life  may  be  said  to  be  founded  on  agreements. 
Whenever  an  individual  buys  or  sells  something,  he  makes 
an  agreement.  Our  whole  social  and  business  life  is  based 
upon  a  series  of  understandings  with  those  with  whom  we 
come  in  contact.  The  more  complex  our  civilization  becomes, 
the  more  agreements  are  made  and  the  more  extended  be- 
come our  contractual  relations. 

Whenever  an  agreement  is  of  such  a  nature  that  it  may 
be  enforced  in  a  court  of  law,  it  is  called  a  contract.  Most 
of  the  laws  on  our  statute  books  and  most  of  the  laws  affect- 
ing the  daily  life  of  the  individual  have  to  do  with  the  sub- 
ject of  contracts.  The  sale  of  goods  is  a  contract,  the 
appointment  of  an  agent  is  a  contract,  and  the  business  done 
by  an  agent  is  that  of  making  contracts.  Insurance,  whether 
of  life  or  of  property,  is  a  contract;  partnerships  and  corpora- 
tions are  both  based  on  contracts;  in  fact,  there  is  no  business 
relation  but  is  either  itself  a  contract  or  else  is  based  upon 
a  contract. 


§  36.    Definition 

A  contract  is  defined  as  an  agreement  between  two  or 
more  parties,  for  a  sufficient  consideration,  to  do  or  not  to  do 
some  specified  thing  or  things.  This  is  the  accepted  legal 
definition  of  a  contract. 


>  For  forms  of  contracts,  se«  Chapters  XCVIII-CI,  Forms  1-25. 

41 


42 


CONTRACTS 


fi 


It  is  an  agreement,  and  the  minds  of  the  parties,  to  use 
the  technical  phrase,  "must  meet." 

There  must  be  two  legally  competent  parties  to  a  contract; 
there  may  be  many. 

There  must  be  a  consideration,  without  which  there  can 
be  no  legal  obligation.  If  a  man  agrees  to  do  something, 
there  must  be  a  valid  reason  or  inducement  for  him  to  bind 
himself.  This,  in  legal  parlance,  is  the  consideration.  If 
the  promise  were  gratuitous,  that  is,  if  there  were  no  induce- 
ment for  the  promise,  it  might  be  a  matter  of  honor  to  carry 
it  out,  but  it  would  not  be  a  matter  of  legal  compulsion.  A 
naked  promise,  without  consideration,  cannot  be  enforced  in 
a  court  of  law. 

There  must  be  the  obligation,  or  thing  to  be  done.  This 
promise  may  be  to  pay  money,  to  do  work,  or  to  deliver 
goods;  or  it  may  be  merely  not  to  do  something  which  the 
person  contracting  had  a  right  to  do. 

§37.    Essential  Features 

In  order  to  make  any  agreement  legally  enforceable  as  a 
contract,  there  must  be  the  following  essentials: 

The  parties  to  the  agreement  must  be  legally  com- 
petent to  contract. 
The  agreement  must  be  to  do  something  lawful. 
The  parties  must  agree  to  the  same  thing. 
There  must  be  a  sufficient  consideration. 


I. 


2. 

3- 


I  i 


These  several  elements  of  a  contract  will  be  explained  in 
the  following  sections. 

§  38.    Competency  of  Parties 

The  parties  to  a  contract  may  be  individuals,  partnerships. 
or  coiporations.    The  partnership  name  mav  be  diflferent  fronj 


ESSENTIAL  FEATURES  OF  A  CONTRACT  43 

the  names  of  the  partners  composing  it.  The  laws  of  most 
states  provide  that  one  or  more  persons  may  associate  them- 
selves under  any  name  they  choose  to  assume  for  business 
purposes,  and  upon  recording  it  in  the  proper  offices  together 
with  their  own  names  and  addresses  may  do  business  and 
contract  under  the  assumed  name. 

A  person  would  bind  himself  if  he  contracted  under  an 
assumed  name.  The  other  party  might  not  be  bound,  if  he 
was  deceived. 

Generally  all  persons  are  able  to  bind  themselves  by  con- 
tract. It  is  a  positive  right.  But  there  are  exceptions  to 
the  general  rule.  Certain  persons  are  not  competent  to  con- 
tract, and  certain  other  persons  have  only  a  qualified  right 
to  make  contracts. 

If  a  person  has  been  legally  declared  a  lunatic  or  a  spend- 
thrift, and  a  guardian  has  been  appointed  by  the  court  to 
look  after  his  property,  such  person  has  no  power  to  enter 
into  a  binding  contract.  No  agreement  made  by  him  could 
be  enforced,  even  though  the  person  dealing  with  him  did 
not  know  that  he  was  insane  or  a  spendthrift  and  had  been 
legally  declared  incompetent.  There  is  one  exception  to  this 
rule— a  contract  to  buy  absolute  necessities  for  life  and  health 
A  person  may  supply  an  insane  person  with  necessary  things 
and  will  be  legally  entitled  to  payment  for  them. 

As  it  is  necessary  for  a  party  to  give  his  free  consent  to 
an  agreement  and  to  know  what  he  is  consenting  to,  intoxi- 
cated and  insane  persons  who  have  not  been  legally  declared 
to  be  such,  cannot  make  enforceable  contracts  if  the  insanity 
or  the  intoxication  prevents  them  from  understanding  the 
nature  of  their  acts  at  the  time  the  contract  is  entered  into 

The  Law  Varies  with  Location.  This  question  of  com- 
petency depends  on  tiie  law  of  the  place  where  the  contract 
was  made.  If  a  person  legally  declared  a  spendthrift  should 
go  into  another  state,  he  would  be  perfectiy  capable  of  making 


I 


i 


ii 


44 


CONTRACTS 


m 


contracts  there  until  he  has  been  declared  a  spendthrift  in 
the  courts  of  that  state.  A  person  legally  declared  insane, 
if  he  had  lucid  intervals,  might  in  a  state  other  than  that  in 
which  he  had  been  declared  insane  make  an  enforceable  con- 
tract in  a  lucid  interval.  The  age  at  which  a  person  becomes 
legally  competent  to  contract  varies  in  different  states.  The^ 
local  law  should  always  be  consulted. 

Indians.  Indians  living  on  government  reservations  are 
protected  by  the  federal  law,  and  may  make  enforceable  con- 
tracts only  imder  such  conditions  as  that  law  prescribes.  If 
they  leave  the  reservations  and  enter  into  ordinary  business 
relations,  they  are  usually  held  liable  in  the  same  way  as  any 
other  business  men. 

Married  Women.  "K  married  woman  does  not  have  entire 
freedom  of  contract.  As  a  usual  rule  a  married  woman  can- 
not make  an  enforceable  contract  with  her  husband.  Formerly 
a  married  woman  could  not  make  a  contract  at  all  without 
her  husband's  consent,  but  this  has  been  changed.  It  is  safest 
to  consult  the  law  of  the  state  in  which  one  resides  before 
entering  into  a  contract  with  a  married  woman,  as  a  few 
states  still  give  her  a  measure  of  irresponsibility.  A  married 
woman  may,  in  any  state,  act  as  an  agent  for  her  husband. 

(See  §  128.) 

Minors.  Minors  (persons  who  are  under  legal  age,  which 
is  generally  21)  have  only  a  qualified  ability  to  make  con- 
tracts. That  is  to  say,  the  minor  may  make  a  contract  but 
the  other  contracting  party  cannot  enforce  it  if  the  minor 
chooses  not  to  perform  his  part.  The  minor  may  even  annul 
th^  contract  after  it  has  been  performed,  return  the  property 
and  demand  his  money  back,  or  vice  versa.  If  the  minor 
has  taken  a  fraudulent  advantage  of  the  other  person  by  lead- 
ing that  person  to  think  he  is  of  full  age,  the  law  will  later 
prevent  the  minor  from  stating  that  he  is  under  age  when 
he  comes  into  court,  and  will  therefore  make  him  perform 


ESSENTIAL  FEATURES  OF  A  CONTRACT  45 

his  agreement.  If  under  the  contract  the  minor  has  received 
property  or  money  from  the  other  party,  he  will  be  made  to 
repay  or  to  return  it  if  possible;  but  if  he  has  spent  or  other- 
wise disposed  of  it  he  may,  as  a  rule,  still  refuse  to  repay  or 
return  it. 

People  dealing  with  young  persons  are  supposed  to  look 
out  for  their  own  interests  and  to  find  out  whether  such 
parties  are  of  age  or  not.  The  minor,  because  of  his  in- 
experience, IS  guarded  by  the  law  not  only  against  the  designs 
of  other  persons  but  also  against  his  own  carelessness.  He 
IS  not,  however,  guarded  against  his  own  wrong-doing  If 
he  injures  property  he  will  be  obliged  to  pay  damages. 

After  a  minor  has  come  of  age  he  may  confirm  any  con- 
tracts made  while  he  was  a  minor.  He  may  do  this  either 
by  words  or  by  acts.  If  he  keeps  the  property  obtained 
under  such  a  contract  for  an  unreasonable  length  of  time 
however,  the  court  will  consider  that  he  has  confirmed  it' 
Moreover,  unless  the  minor  pleads  his  infancy  in  court  a 
contract  may  be  enforced  against  him  as  against  anv  other 
person.  No  one  else  may  plead  this  for  him.  If  he  becomes 
insolvent,  a  receiver  of  his  property  may  not  call  off  any  of  hie 
contracts  for  him,  no  matter  how  unfair.  If  the  minor  himself 
chooses  to  stand  by  them,  they  are  legally  binding. 

Note: 

I.     It  is  not  safe  to  have  any  business  dealings  with  a 
minor. 

§  39.    The  Subject  Matter  Must  Be  Lawful 

The  subject  matter  of  a  contract  is  that  which  the  agree- 
ment  is  about.  It  may  consist  of  any  property,  commodity 
or  service  which  could  be  the  subject  of  a  business  transaction' 
or  It  may  be  to  do  or  not  to  do  something,  such  as  to  pay 
for  the  privilege  of  naming  a  child,  or  to  pay  a  young  man 
to  abstain  from  using  tobacco. 


i 


^(   ii 


46 


CONTRACTS 


An  agreement  to  do  anything  contrary  to  law  would  be 
unenforceable.  An  agreement  to  do  anything  which,  while 
not  directly  contrary  to  any  special  statute,  would  be  in- 
jurious to  the  peace  and  good  order,  the  health,  or  the  morals 
of  the  community,  would  be  against  public  policy  and  would 
be  unenforceable. 

The  following  agreements  would  be  contrary  to  law  or  to 
public  policy  and  therefore  unlawful: 

1.  An  agreement  to  prevent  a  person  from  marrying  or 
to  break  up  a  marriage. 

2.  An  agreement  to  persuade  one  person  to  marry  an- 
other. 

3.  An  agreement  in  restraint  of  trade.  The  Supreme 
Court  has  decided  that  agreements  in  reasonable  restraint  of 
trade  are  not  contrary  to  public  policy.  Where  a  person  sells 
out  his  business  to  another  he  may  agree  not  to  engage  in 
that  business  again  within  certain  reasonable  territorid  limits 
and  for  a  limited  time,  but  the  majority  of  the  cases  in  this 
country  condemn  contracts  to  restrain  trade  throughout  the 
entire  state  or  in  the  entire  country  for  an  indefinite  period. 
It  is  considered  to  be  against  public  policy  that  the  people  of 
the  whole  state  should  for  any  length  of  time  he  deprived 
of  the  industry  and  skill  of  anyone  engaged  in  a  useful  em- 
ployment. 

4.  Gambling  contracts.  Contracts  for  the  buying  and 
selling  of  "options"  and  "futures"  and  of  stock  "on  margin," 
are  regarded  as  gambling  contracts  in  some  states,  and  will 
not  be  enforced  unless  the  party  selling  the  stock  was  in  some 
way  entitled  to  it  or  was  selling  it  as  agent  for  the  real  owner. 

'Fire  insurance  can  be  taken  out  on  property  only  by  a 
party  who  has  some  interest  in  it,  and  life  insurance  only  by 
the  party  insured,  his  wife,  child,  or  some  other  person  who 
would  be  entitled  to  support,  or  by  a  creditor  who  had  a 
claim  against  the  person  whose  life  was  insured,  or  by  a 


feSSENTIAL  FEATURES  OF  A  CONTRACT  47 

business  partner  or  employer.  Otherwise  it  would  merely 
amount  to  a  wager  as  to  whether  the  property  would  be  de- 
stroyed or  when  the  person  would  die. 

5.  Contracts  in  which  usurious  interest  is  charged.  Some- 
times the  contract  itself  will  be  enforced,  but  the  partv  will 
be  prevented  from  collecting  interest;  sometimes  he  will  not 
be  allowed  to  enforce  any  part  of  the  contract. 

6.  Contracts  to  commit  a  fraud  or  a  crime. 
7-     Contracts  for  the  sale  of  adulterated  goods 

8.  Contracts  to  bribe  public  officials,  or  contracts  of 
bribery  with  such  officials. 

9.  Agreements  by  candidates  to  appoint  persons  to  posi- 
tions  in  case  said  candidates  are  elected,  or  to  do  anything 
else  m  return  for  aid  in  securing  their  election. 

i^;    ^^[^^""^"^^  "^^  to  prosecute  a  person  for  a  crime 
All  of  these  last  cases  are  contrary  to  public  policy  be- 

cause  the  subject  matter  pertains  to  something  unlawful  and 

injurious  to  the  community. 

II.     An  agreement  made  in  advance  not  to  take  a  dispute 

into  court.     The  law  favors  the  settling  of  disputes  out  of 

court  as  much  as  possible;  but  it  is  contrary  to  public  policy 

It'^l'^r^""'^  '"  "^"""'^  "^  ^''  '''^^'  '^  be  heard  in 
court  whether  by  agreement  or  otherwise.     But,  while  two 

parties  may  not  contract  to  refrain  from  taking  a  possible 

disagreement  to  court,  they  may  contract  to  arbitrate  in  a 

specified  manner  before  the  court  is  resorted  to. 

12  A  contract  to  perform  services  in  return  for  money 
made  by  a  medical  student  before  he  has  been  licensed,  bv  a 
law  student  before  he  has  been  admitted  to  the  bar,  or  by  anv 
other  person  who  is  required  by  the  law  to  submit  to  certain 
requirements  before  being  licensed  to  practice  his  profession 
or  vocation  and  who  is  not  yet  so  licensed,  is  void;  any  fees 
which  may  have  been  agreed  upon  cannot  be  collected. 

When  an  illegal  contract  has  been  made,  the  courts  will 


•*^ 


48 


CONTRACTS 


ii  i 


refuse  to  interfere  at  all.    The  parties  are  simply  left  as  they 
are,  to  straighten  the  matter  out  as  best  they  can. 

Notes: 

1.  A  contract  to  do  anything  unlawful  cannot  be  en- 

forced. 

2.  No  money  paid  on  such  a  contract  can  be  recovered. 

3.  No  services  so  rendered  can  be  made  the  basis  of  a 

suit. 

§  40.    The  Law  of  Place 

The  law  which  governs  a  contract  is  the  law  of  the  place 
where  it  was  made.  If  it  is  to  be  performed  elsewhere,  the 
parties  may,  if  they  wish,  expressly  state  that  it  is  made  in 
conformity  with  the  law  of  the  state  where  it  is  to  be  per- 
formed, provided  they  do  not  do  so  in  an  attempt  to  evade 
the  law  of  the  state  where  it  was  made.  A  contract  made  in 
good  faith  to  be  performed  elsewhere  need  not  comply  with 
the  law  of  the  state  where  it  was  made  if  there  is  a  conflict 
between  the  two  laws,  but  the  fact  that  it  is  to  be  governed 
by  the  law  of  a  state  other  than  that  in  which  it  was  made 
must  always  be  expressly  stated  in  the  contract.  (See  also 
§38) 

§  41.    The  Subject  Matter  Must  Exist 

There  must  be  some  subject  matter  in  existence  to  contract 
about.  If  the  contract  were  to  add  a  wing  to  a  house  and 
the  house  were  burned  down  at  the  time  of  the  agreement 
without  the  knowledge  of  the  contracting  parties,  there  would 
bC'no  contract  If,  however,  the  contract  was  about  some- 
thing that  has  been  lost  or  destroyed  but  that  might  be  re- 
placed, such  as  a  contract  for  the  sale  of  grain,  the  contract 
is  valid  and  the  party  who  agreed  to  deliver  the  grain  must 
procure  it  elsewhere.    (See  also  §  88.) 


ESSENTIAL  FEATURES  OF  A  CONTRACT  49 

§  42.    Agreement  of  the  Parties 

It  is  essential  that  the  parties  to  a  contract  agree  on  the 
terms ;  or,  m  legal  phraseology,  tliat  "their  minds  meet  "    This 
agreement  results  usually  from  an  offer  made  by  one  party 
which  is  accepted  by  the  other.    The  offer  or  proposal  may 
be  oral  or  written,  and  the  acceptance  may  be  oral  or  written. 
1  he  simplest  form  of  contract  is  an  offer  to  sell  goods  at  a 
specified  price  and  an  acceptance  of  the  goods  at  that  price. 
If  this  offer  is  made  by  letter  and  the  acceptance  is  made  by 
letter,  the  two  letters  taken  together  constitute  a  complete 
contract  of  sale.    Some  other  points  might  be  mentioned,  but 
these  the  law  will  supply.    When  nothing  is  said  as  to  terms, 
the  law  implies  cash.    When  nothing  is  said  about  delivery 
the  law  implies  that  the  buyer  will  be  entitled  to  deliver^^ 
when  he  pays  the  price.    (  See  Chapter  XVI. ) 

Acceptance  by  Mail  or  Telegraph.  If  the  party  making 
tl^  offer  requests  an  answer  by  mail  or  telegraph,  the  post- 
office  or  the  telegraph  company  becomes  his  agent  to  receive 
the  acceptance,  and  the  agreement  becomes  effective  the  mo- 
ment a  properly  stamped  and  addressed  letter  of  acceptance 
IS  deposited  in  the  mail-box  (even  though  the  letter  does  not 
reach  its  destination)  or  the  moment  a  prepaid  telegram  (un- 
less the  other  party  had  directed  that  it  be  sent  "collect") 
with  the  proper  address,  is  given  to  the  telegraph  company  to 
be  sent.  ' 

The  point  is  important  because  the  person  makin?  the 
offer  has  a  right  to  withdraw  it  if  he  informs  the  other  party 
of  his  change  of  decision  before  the  other  party  has  accepted 
>.e.,  has  put  a  letter  in  the  mail  or  has  sent  a  telegram  of 
acceptance.  In  other  words,  a  contract  may  be  complete  before 
the  acceptance  is  actually  received,  and  it  is  then  too  late  to 
withdraw  the  offer. 

If  a  party  makes  an  offer  by  mail  or  telegraph,  he  is 
regarded  as  having  requested  a  reply  by  the  same  means 


so 


CONTRACTS 


unless  he  expressly  asks  for  a  reply  in  some  other  way;  so 
that  if  the  party  receiving  the  offer  replies  in  the  same  wav 
his  acceptance  becomes  effective  from  the  moment  he  mails 
It  or  gives  it  to  the  telegraph  company  to  send.  If,  on  the 
contrary,  he  replies  m  some  other  way,  there  is  no  agreement 
until  the  aiisiuer  actually  reaches  the  other  party.  In  this 
last  case,  if  the  first  party  sends  a  letter  withdrawing  the  offer 
and  this  letter  arrives  at  its  destination  before  the  letter  of 
acceptance  reaches  the  first  party,  there  is  no  agreement 

Manner  of  Acceptance,     The  offer  must  be  accepted  in 
accordance  with  its  terms.    To  accept  an  offer  in  any  terms 
other  than  those  in  which  it  was  made  amounts  to  a  refusal 
The  first  party  may  decide  to  accept  the  new  terms,  in  which 
case  there  wiU  be  a  new  and  different  agreement,  but  he  has 
the  privilege  of  rejecting  the  proposed  contract  entirely     If 
the  offer  was  made  to  one  person  only,  another  could  not 
accept  It;  if  made  for  a  limited  time,  it  must  be  accepted 
within  that  time.    Advertisements  offering  a  reward  for  the 
return  of  lost  articles  are  made  to  the  public  in  general  and 
the  offer  may  be  accepted  by  anyone  who  finds  the  goods 
An  offer  cannot  be  accepted,  however,  after  the  party  who 
made  it  dies  or  becomes  insane,  and  it  must  in  any  case  be 
accepted  within  a  reasonable  time;  people  cannot  be  held  to 
offers  made  long  ago  and  forgotten,  or  after  the  circumstances 
which  led  to  the  offers  have  changed.     What  constitutes  a 
reasonable  time  will  depend  on  the  circumstances.    The  party 
who  makes  the  offer  may  set  a  time  limit  for  its  acceptance 
after  the  expiration  of  which  the  offer  is  no  longer  open  for 
acceptance.    It  is  always  prudent  to  accept  a  desirable  offer 
promptly. 

Options,  In  negotiations  an  option  or  refusal  may  be 
given,  good  for  a  certain  time.  Unless  something  has  been 
paid  for  an  option,  it  may  be  revoked  at  any  time  because 
It  is  an  agreement  without  consideration.    An  option  so  given 


ESSENTIAL  FEATURES  OF  A  CONTRACT  51 

is  a  contingent  offer  and  may  be  accepted  at  any  time  before 
withdrawal  or  expiration  of  time. 

§  43-    Oral  Agreement 

In  many  cases  of  contract  the  parties  agree  upon  the 
terms  orally  by  discussion,  proposal  and  counter-proposal, 
suggestion  and  objection,  until  they  think  that  they  have 
arrived  at  substantial  agreement.  At  this  stage  the  contract 
should  be  reduced  to  writing.  When  this  is  attempted  it  will 
usually  develop  that  each  party  has  understood  the  discussion 
differently  and  a  renewed  discussion  results.  Finally,  when 
the  written  agreement  is  agreed  to  by  both,  it  is  signed ;  and 
then  it  supersedes  all  understandings  and  binds  the  parties. 

In  most  cases  an  oral  contract  is  as  good  as  a  written  one 
except  that  it  is  harder  to  prove.  After  a  discussion  of  terms 
each  party  has  a  different  impression  of  the  conclusions 
reached.  Certain  parts  deemed  favorable  by  one  party  are 
most  strongly  impressed  upon  his  memory,  while  other  parts 
not  so  agreeable  are  not  so  well  remembered,  and  after  a  year 
or  so  two  men  can  honestly  go  into  court  and  swear  to 
absolutely  contradictory  accounts  of  the  same  transaction. 
Here  the  great  advantage  of  the  written  agreement  becomes 
apparent.  That  which  is  written  changes  not;  and  the  law 
will  not  allow  oral  evidence  to  be  introduced  to  contradict 
that  which  the  parties  have  agreed  to  in  writing.  If,  mean- 
while, one  of  the  parties  has  died,  the  written  contract  is  vet 
more  essential  for  proof.  Hence,  in  business,  one  should 
never  entrust  to  memory  anything  that  can  possibly  be  put 
mto  writing.     (See  §§  46,  47.) 

Notes: 

1.  In  most  disputes  over  contracts,  the  trouble  arises 

because  part  or  all  of  the  contract  is  not  written. 

2.  On  this  account  the  exchange  of  letters  makes  for 

certainty  in  contracts. 


52 


CONTRACTS 


!l 


i 


§  44-    Consideration 

■  a  cotrC"'"'  ""  ^'^  soniething  or  to  give  something  is  not 
a  contract,  since  a  mere  promise  rann^f  u  ."""""«  '^  not 
There  must  be  a  con.irlL.       f    T       ^  enforced  by  law. 

tion  being  soletZ.;"   ""^  *'  P™*"'^^'  *^  "^^n^idera- 
party       "^  something  done,  given,  or  promised  by  the  other 

One  party's  promise  is  a  good  consideration   tr.    .u 
promise  of  another  party.    If  A  agrees  to  n,    r  ^  *^ 

service  and  B  agree'   to^erform'S    e^fce   f  ^.hr"" 
tract  has  been  created  and  A  must  fnlfiM  '°"' 

B  has  fulfilled  his     Or  if  A  Z  '  ^'"""'^  ^'^^" 

delivered  to  C.  when  B  hi'^^^Je^X^VmLf  ofV^""^ 

promise  in  return  for  .„^*u  .  ^  P^'''°"  '"^es  a 

require  him  t^™ie  ^0..-  ^"■'°"  '  P'^™^^'  *^  ^^^  ^iU 
has  fulfille"  Us^W^:j:Zlf^  *^  ^^^^  ^^^ 
sideration  for  each  other     An  P™""'"'  ^''^  «=«"- 

ordinal,  real  eTtJe  Xf  Ih^r^  o^Tart^  '°""'  ^  ^" 
seU  and  the  other  party  promiles Tbu;  The' o'n'r'":-  '' 
for  an  enforceable  contract  may  be  vert  ;,n.ll  '*'""^Y^"«" 
the  vali«»  nf  «,»,..*  •  ''^'-  "ay  oe  very  small  compared  with 
uie  value  of  what  is  agreed  to  by  the  other  oartv  it  m,  k 
inadequate  or  even  insignificant.  ^'        ^  "^ 

For  instance,  a  man  might  offer  to  rive  hi^  <^n  «,  ~^  -r 
he  woi^d  ref^  f.om  smoLg  until  he'^;:';^/^^  It 

money,  but  he  is  giving  up  the  right  to  smokp_n„^  *i, 
tract  will  be  enforced.    In  this  case  fh!  ~^^"d  the  con- 
$1,000  is  the  surrender  of  a  privS^*'  consideration  for  the 

It  IS  very  common  to  mention  the  sum  of  <fiT  ;« 
where  the  parties  do  not  wish  the  ^ei  loi  "f  T^T 
Sideration  to  be  known.    In  most  rA<;pc  ^«.  a  n  "" 

however  small  or  nominal,  if  given  or  st,n.,lof  J  *      •  ' 


ESSENTIAL  FEATURES  OF  A  CONTRACT  gi 

A  Stipulation  in  consideration  of  one  dollar  is  quite  as  effectual 
and  valuable  a  consideration,  as  the  larger  sum  stipulated  and 

Impossible  Consideration.  If  the  consideration  agreed  to 
by  one  of  the  parties  is  something  impossible  to  perform  the 
contract  is  void  and  unenforceable.    This  would  be  true  if  one 

!L  ^T'""  ^^"."^  '"^  ^°  ""  '"^^^J  «ct  •"  return  for  the 
other  party  s  promise.  He  could  not  be  required  to  perform 
It;  consequently  he  has  given  nothing  penorm 

is  not'"'."^  ^o^'^thing  that  one  is  already  obliged  by  law  to  do 
IS  not  a  valid  consideration;  for  instance,  a  promise  to  pay 
a  debt  already  owed  would  not  be  a  good  consideration  for 

fnlnU  "fr""'?-  Al  "^'■'''"'"'  '"^  P^y  J^^"  «f  ^  debt  due 
m  full  setUement  would  not  be  any  consideration  for  the  other 

half  which  the  law  would  still  hold  to  be  a  binding  debt 
(See  §  500.)  ^       "'^• 

.on  ^7!  ^"d  affection  for  one's  friends  and  relatives  do  not 
cons  itute  a  legal  consideration  for  a  contract.     One  does 
not  love  them  more  or  less  on  account  of  the  agreement 
There  IS  no  change  in  the  situation  of  the  person  which  would 

0^1  VrT  '"■  *'  ''"  '"^  '"^^^^^^^  *°  --"P^'  *e  other 
party  to  keep  his  promise. 

Notes: 

I.     Some  consideration  should  always  be  mentioned  in 
the  contract. 

It  is  wiser  to  name  the  true  consideration,  as  then 
there  can  be  no  misunderstanding  if  it  becomes 
necessary  to  prove  the  contract  in  court 

The  matter  of  no  consideration  comes  up  again  and 
again  m  legal  practice,  making  void  otherwise 
good  agreements,  and  the  principle  should  be 
thoroughly  comprehended. 


2. 


'Uwrence  v.  McCalmont,  i  Howard  (U.  S.)  446. 


! 


54 


1 


CONTRACTS 


Review  Questions 


1,  What  are  some  common  synonyms  for  the  word  "contract"? 

2.  What  is  the  legal  definition  of  a  contract' 
*       ^^s''^e7^^'-'''"r'^'''''''^'"''°'^'--'^-'=^-    What 
4.    Who  are  comL.    ff^P'^"^  =>  "*««-<=  obligation  in  a  contract. 

to  make  contracts?     If  a  person  not  competent  to  make  a 
contract  s.gned  an  agreement,  what  would  be  the  effect" 

^n^LhVriire-  "  """'"''  *°-^"'^  =°™  -  "^-^  -te 

7.  What  ,s  the  legal  age  of  majority  in  your  state? 

8.  If  a  mmor  represents  himself  as  of  age,  what  is  the  effect' 

'"       i^yTr  it^tu"  ""t^t'  =°"''  '^  ''-'  '-"^ -"-  to 
,„     H^r^  Suppose  he  had  wrecked  it? 

o.    When  may  a  creditor  enforce  a  contract  against  a  minor' 

".^is%re;r'""°^'''"''^"^-"-"°^— ^««e?    why 

'^o'diltit^i  mip  -""^'^  ''■■-''"-■^■•"•'    ^-^  ^^  ^'  -afe 
What  two  classes  of  contracts  are  unenforceable?    What  aeree 
ments  about  marriage  are  unenforceable '  ^    '" 

wSlare  "ir" ''  '°  "'^'^"'^'^  i"  restraint  of  trade"? 
wnatare    wagenng  contracts"  ? 

It'  wh«  '!J'"  ""  ''^ '°  "^"'y  •"  y°"'  *'«e? 

a     wu      °         agreements  are  illegal  ? 

■    of"  ht'iat  whirTT  •  ''  ^  T''"'  ''"-'^'  'y  ♦"«  '- 

delivered  in Vr^-f         "  u"**^''    ^  ^^^^^  '^^cuted  and 
^''vered  m  California  is  the  subject  of  a  suit  in  New  York. 


12. 

13- 

14. 
15. 


19. 


20. 


21. 


22. 


ESSENTIAL  FEATURES  OF  A  CONTRACT  55 

What  laws  govern  the  vah'dity  and  construction  of  the  con- 
tract?   What  laws  govern  the  remedy? 

What  is  the  rule  as  to  existence  of  the  subject  matter?  If  a 
sale  were  made  of  a  particular  horse  at  another  place  and 
the  horse  had  died  before  the  contract  was  made,  what  would 
be  the  effect?    Suppose  the  purchaser  had  paid  for  it? 

What  terms  as  to  payment  are  implied  in  a  contract?  As  to 
delivery  ? 

When  do  the  minds  of  the  parties  meet  in  a  contract  made  by 
mail  or  telegraph?  What  is  the  rule  as  to  the  method  of 
acceptance  ? 

A  writes  and  offers  goods  to  B,  in  another  town,  at  a  stated 
price.  B  receives  the  offer  and  immediately  writes  back  to 
A  his  acceptance.  The  letter  is  deposited  in  the  mail-box 
but  never  reaches  A.  A,  not  hearing  from  B,  offers  his  goods 
to  C,  whose  acceptance  reaches  A.  B  sues  A  for  breach  of 
contract.    Has  he  a  cause  of  action?    Why? 

A,  on  March  21,  wrote  B,  a  day's  journey  away,  and  offered 
B  a  position.  He  ended  his  letter  by  saying:  "You  will  confer 
a  favor  by  giving  me  your  answer  by  return  mail."  B  received 
the  letter  on  March  22.  B  on  the  23d  wrote  her  acceptance 
and  gave  it  to  a  boy  to  mail.  The  postmark  showed  that  it 
was  not  mailed  until  the  25th.  A  not  receiving  answer  offered 
position  to  another.  B  sued  for  breach  of  contract.  Has  she 
a  cause  of  action? 

What  is  the  effect  of  accepting  with  a  slight  variation  of  terms? 

How  long  does  an  offer  stand  open? 
Why  is  a  written  contract  better  than  an  oral  contract?    Why 

should  the  terms  of  an  agreement  be  definite? 

26.  Why  cannot  an  agreement  without  consideration  be  enforced? 

27.  If  a  man  owes  $100  and  agrees  to  pay  $50  in  discharge  of  the 

debt,  can  he  be  made  to  pay  the  remainder  ?    Why  ? 

28.  Without  other  consideration  is  payment  of  a  smaller  sum  ever 

satisfaction  for  a  debt  of  greater  amount? 


23- 


24. 


25 


CHAPTER  VII 

HOW  CONTRACTS  ARE  MADE 

§45-    Classification  of  Contracts 

In  this  book  contracts  have  been  class}fi«l  =,..„  a- 
function,  into  contracts  of  sale  con^rffT  according  to 
tain  other  more  arbitrary  T:'^^T  1  ^^""'^'  ^*^-  ^er- 
only  occasionaDy  reS  t  f 0^^  'T'*='''  ^^"^"^ 
subject  of  examfnation  queslns  X";t ""'  ^'"'"'"*'^  *«= 
sifications  are  explained  rrpL^rchtter^"  ^'^^^  ^'- 

who  Xif tht s^rs^o'Lirt  1^'^^*'°"^"^'  •'"^  *- 

the  required  contS,  ranrr^aHf^r  '!  ^  ^^^ 
rules  of  loric     For  pv=.™„i  '^  ^''^  ^°"ow  the 

are  contracTs  of ^l^t;r?  o'fT"  ''""'7  '^^  ^^^ 
Judgnients  and  -ognLc^^^As  a  ^ar^ffaTV' 
a  judgment  nor  a  recoenizanr^  ;=  ,        .  *^'  "*'**='" 

legal  definition.  CSS^^n^rS  ^tV^ ^ 
«s  no  agreement    Nevertheless  the  text  IJkc  "  n  V  ' 

entries  "contracts  of  record."  "  *^'^  '^^"'^ 

i^ther  common  question  is:  What  is  a  «mni»       *       , 
and  the  answer  exnected  ic  •  a        .     f  "^'^  contract  ? 

seal.    In  fact.  Stord  Imn.  "t*  °^  ''~^^  °'  ""'J^^ 

pound.  compi;xtrI^carSirrantarf  °'  ^°'"- 
simple  contracts  are  more  complex  aTJhr  u  "^'"^^^ 
tract  under  seal  such  as   ,  I    P'^""  ,*"^  ^^^'^sc  than  a  con- 

/  uu  not  make  it  complex  or  affect  its 
56 


HOW  CONTRACTS  ARE  MADE  57 

Character  in  any  way.  Nevertheless,  those  who  are  preparing 
for  exammation  must  know  how  to  answer  questions  of  this 
sort  upon  occasion. 

Contracts,  then,  may  be  classified  in  regard  to  dignity  and 
facility  of  proof  as  follows:  (i)  oral  contracts.  (2)  written 
contracts  not  under  seal  or  of  record.  (3)  contracts  under 
seal,  and  (4)  contracts  of  record. 

AU  contracts  not  under  seal  or  of  record  are  caUed  simple 
or  parol  contracts  whether  in  writing  or  not 

Fomal  contracts  are  contracts  of  record,  bonds  and 
recognizances,  and  contracts  under  seal,  which  include  all  deeds 
and  instruments  affecting  land  that  are  required  to  be  recorded 
in  offices  of  pubhc  registry. 

§  46.    Oral  Contracts 

A  contract  may  be  made  simply  by  word  of  mouth  or  by 

words  and  acts.     Such  a  contract  is  called  an  oral  contract 

;  '*  r^  """^^  necessary  to  go  into  court  in  order  to  enforce  it 

It  will  be  necessary  to  prove  it  by  oral  testimony.    The  parties 

to  It  will  be  called  on  to  testify  as  to  what  was  said  and  do^e 

Z.      ^"5:  °*"^  P^°P'^  ^^^«  P>-«ent  either  party  may  call 
them  as  witnesses.  j  y-o^^ 

In  such  a  case  the  difficulty  is  that  the  agreement  has  not 
been  reduced  to  writing  and  the  various  parties  present  prob- 
ably have  enbrely  different  ideas  as  to  the  meaning  of  what 
Aey  heard.  The  court  may  decide  that  the  testimony  as  to 
what  happened  is  so  vague  and  contradictoiy  that  it  cannot 

insist  rt.,r  '  '""'•■''^  ^^'  P"'*^^"*  •'"^•"^^^  ^^  will 
insist  that  an  agreements  be  made  in  writing  and  properly 

X  ^hl"  ';       ^1.  *"^  "^^  "^  "^  ^"^^''«"  -«  to  just 
what  obligations  he  has  assumed  or  what  he  may  properly 

expect  from  the  other  party  to  the  contract.  .  Some  contract! 
must  be  in  writing  or  the  courts  will  refuse  to  enforce  them 
^oee  8  40.) 


5^  CONTRACTS 

Notes: 

1.  Avoid  oral  contracts. 

2.  Have  all  contracts  written  and  signed  by  the  parties 

thereto. 

§  47-    Written  Contracts 

The  written  contract  need  not  be  a  formal  document     Two 
letters,  one  making  a  proposition  and  the  other  accepting  it 
constitute  a  contract  just  as  much  as  a  legal  document  duly 
signed  and  sealed  and  acknowledged  before  a  notary. 

The  written  contract  should  contain  all  the  terms— the 
names  of  the  parties;  a  statement  of  the  consideration,  with 
the  tune  and  the  method  in  which  it  is  to  be  paid  or  per- 
formed; a  dear  statement  of  just  what  is  agreed  upon,  when 
It  IS  to  be  done,  and  in  what  manner;  together  with  any 
arrangements  the  parties  wish  to  make  if  something  happens 
to  render  the  contract  impossible  of  performance,  or  in  case 
It  is  only  to  be  performed  under  specified  conditions.  (See 
Chapter  XCVIII,  "Drafting  a  Contract.") 

Business  men  are  accustomed  to  expressing  themselves 
clearly,  concisely,  and  explicitly  in  their  letters.    Letters  and 
copies  are  always  carefully  filed  and  preserved.     For  this 
reason  when  legal  assistance  is  dispensed  with,  a  letter  from 
the  party  making  the  offer  and  a  reply  from  the  party  accept- 
ing or  rejecting  it  are  usually  the  most  satisfactory  method 
of  securing  a  written  contract     Each  party  has  his  own 
records.    Since  they  are  accustomed  to  expressing  themselves 
by  letter,  they  understand  what  thev  have  agreed  to  better 
than  if  the  terms  were  expressed  in  formal,  legal  phraseology 
Even  if  a  lawyer  is  called  in  later,  the  exchange  of  letters  is 
a  good  way  of  making  an  agreement.    If  there  is  an  extended 
correspondence  before  the  parties  finally  arrive  at  an  agree- 
ment, the  last  letter  should  sum  up  all  the  terms  on  which 


HOW  CONTRACTS  ARE  MADE  . 


59 


they  have  finally  agreed,  and  this  should  be  answered  by  a 
simple  letter  of  acceptance,  repeating  the  terms  as  therein 
stated.    (See  Chapter  C,  Forms  13,  14.) 

Note: 

I.    Write  all  contracts.    Never  trust  to  an  oral  under- 
standing. 

§  48.    The  Statute  of  Frauds 

In  order  to  do  away  with  the  uncertainty  of  relying  on 
people's  memories  in  contracts  by  word  of  mouth,  there  was 
passed  in  England  in  1676,  a  law  called  the  Statute  of  Frauds, 
which  required  certain  contracts  to  be  in  writing.  This  statute 
has  been  copied  into  the  law  of  most  of  the  states  of  the 
Union. 

The  Statute  of  Frauds  requires  that  the  contract  shall  be 
proved  by  some  memorandum  in  writing.  It  is  not  necessary 
to  make  the  memorandum  at  the  time  the  contract  is  agreed 
upon.  If  any  memorandum  or  letter  containing  the  essential 
terms  of  the  contract,  i.e.,  the  names  of  the  parties,  the  con- 
sideration, and  enough  to  show  the  nature  of  the  agreement, 
and  signed  by  the  party  to  be  held,  is  written  at  any  time 
before  the  other  party  comes  into  court  to  enforce  the  con- 
tract, the  requirements  of  the  law  are  satisfied. 

Form  of  the  Memorandum,  The  memorandum  must  be 
signed  by  the  party  against  whom  it  is  to  be  enforced,  or  he 
will  not  be  liable  under  it.  It  need  not  be  signed  by  the  other 
party.  Under  the  law  as  enacted  in  some  states,  this  signature 
must  be  at  the  end;  in  others  it  is  sufficient  if  it  is  put  in  any 
part  of  the  memorandum  with  the  intention  of  signing.  This 
written  memorandum  need  not  be  one  paper ;  it  may  be  written 
on  two  or  three  sheets  if  all  refer  to  each  other  plainly  and 
together  make  a  complete  memorandum  of  the  terms  of  the 
contract.    At  an  auction  or  a  sheriff's  sale,  the  auctioneer  or 


II 

II 


6o 


CONTRACTS 


II 


i 


I 


the  sheriff  is  the  agent  for  both  of  the  parties  and  may  sign 
a  memorandum  for  either  of  them. 

Contracts  Which  Must  Be  in  WriHng.     The  following 
contracts  must  be  proved  by  a  written  memorandum  : 

1.  A  contract  where  the  consideration  is  marriage. 

2.  The  promise  of  an  executor  or  an  administrator  to 
pay  a-  claim  against  an  estate  which  is  in  his  charge  out  of 
his  own  money.  If  any  property  of  the  estate  is  left,  the 
claim  wdl  be  payable  out  of  that,  but  in  any  case  the  executor 
or  the  administrator  will  not  be  liable  personally  unless  there 
is  a  wntten  agreement 

3-  A  promise  to  be  responsible  for  the  debt,  the  default, 
or  the  miscarriage  of  another.  This  means  a  contract  of 
suretyship  or  guaranty,  which  wiU  be  explained  later.  (See 
Part  XIII,  "Suretyship.") 

I  f  i^?"^^^^  ^°'  *^  ^«  of  land  or  of  any  interest  in 
land.  This  does  not  refer  to  a  deed,  but  to  a  contract  to 
give  a  deed.  A  deed  must  always  be  in  writing.  A  deed 
which  is  not  in  proper  form  to  operate  as  a  deed  may  some- 
times operate  as  a  contract  to  seU  the  property,  and  the  party 
will  be  compelled  to  give  a  good  deed.  A  defective  deed  can- 
not be  corrected  without  much  trouble. 

If  a  person  makes  a  contract  to  sell  or  to  buy  land  through 
an  agent,  the  agent  must  in  most  states  be  given  authority 
m  wnting  to  sign  the  contract 

Growing  things,  such  as  trees,  grass,  and  plants  that  come 
up  of  themselves  every  year  are  regarded  as  part  of  the  land 
and  a  contract  to  sell  or  to  buy  them  must  be  in  writing 
Crops  which  have  to  be  planted  every  year  are  not  regarded 
as  part  of  the  land  even  while  they  are  growing. 

A  lease  of  real  property,  if  it  is  to  last  for  over  a  year 
must  usually  be  in  writing.  ' 

5-    A'  contract  which  is  not  to  be  performed  within  a  year 
from  the  time  it  was  made.    A  contract  which  might  possibly 


HOW  CONTRACTS  ARE  MADE 


6i 


be  performed  in  a  year,  although  it  might  take  longer,  need 
not  be  in  writing  to  be  enforceable.  It  is  always  better,  how- 
ever, to  have  such  a  contract  in  writing. 

6.    A  contract  for  the  sale  of  personal  property  of  over 
a  certain  fixed  amount  in  value.     (This  is  explained  fuUv  in 
Chapter  XVII,  "The  Statute  of  Frauds.") 
Note: 

I.  The  fact  that  an  oral  contract  may  be  unenforceable 
because  of  the  Statute  of  Frauds  is  another  reason 
why  all  contracts  should  be  in  writing. 

§  49-    Contracts  Under  Seal 

The  use  of  the  seal  is  a  survival  from  the  time  when  very 
few  people  could  read  or  write.  The  seal  was  used  on  the 
most  important  documents  as  we  use  a  signature  today  Be- 
cause of  the  importance  that  was  attached  to  it  then,  the  seal 
IS  still  used  on  documents  of  the  greatest  importance. 

Deeds  and  mortgages  of  land,  and  in  some  states  wills 
must  be  under  seal.  A  power  of  attorney  to  deed  land  alsci 
requires  a  seal.  A  seal  on  any  document  such  as  a  deed  or  a 
contract  is  regarded  as  showing  that  there  was  consideration 
for  the  deed  or  the  agreement  whether  any  is  mentioned  in  the 
document  itself  or  not  In  this  country,  however,  a  person 
IS  usually  allowed  to  prove  that  there  was  no  consideration 
even  if  there  is  a  seal.  ' 

A  seal  may  in  many  states  be  merely  a  scroU.  In  others 
a  little  red  wafer  is  used.  In  New  York  the  letters  L.S  {locus 
stgtlli,  the  place  of  the  seal)  which  were  originally  intended 
as  instructions  as  to  where  the  seal  should  be  placed,  are  now 
regarded  as  a  sufficient  seal. 

A  corporation  generally  verifies  papers,  particularly  im- 
portant documents,  with  its  corporate  seal. 

A  contract  under  seal  is  also  called  a  contract  by  specialty 


\ 


62 


CONTRACTS 


The  word  "covenant*'  is  applied  as  follows:  (i)  It  may  be 
a  written  agreement  under  seal;  (2)  It  may  be  a  modifying 
agreement  contained  within  a  deed  or  other  sealed  instrument; 
(3)  It  may  be  a  clause  of  an  agreement  contained  in  a  sealed 
mstrument. 

Note: 

I.  Seals  are  generally  required  in  connection  with  legal 
papers  dealing  with  real  estate,  on  bonds,  and 
sometimes  on  wills. 

§  50-    Contracts  of  Record 

Contracts  may  be  distinguished  as  to  whether  or  not  they 
are  of  pubUc  record ;  that  is,  filed  or  recorded  in  some  court 
or  public  office.  The  highest  form  of  contract  of  record  would 
be  a  judgment,  which  may  be  called  a  contract  of  record 
although  it  lacks  any  element  of  a  contract.  It  may  be  founded 
upon  a  contract,  but  when  a  judgment  has  been  secured  so 
tnat  it  is  of  record,  it  becomes  a  claim  that  can  be  collected 
at  any  time  at  the  option  of  the  party  in  whose  favor  it  has 
been  rendered. 

Another  form  of  contract  of  record  is  what  is  called  a 
recognizance.  In  certain  legal  procedures  a  party  is  required 
to  give  bond  or  furnish  surety  that  he  will  appear  before  the 
court  at  a  certain  time  or  that  he  will  keep  the  peace,  observe 
the  terms  of  an  injunction,  or  do  some  other  thing.  Though 
this  is  a  compulsory  proceeding,  and  has  no  single  trace  of  an 
agreement  or  a  consideration,  it  is  nevertheless  caUed  a  con- 
tract of  record. 

Othei-  contracts  of  record  are  deeds,  mortgages,  contracts 
to  convey  land,  or  other  instruments  which,  after  being  ac- 
knowledged  before  a  notary  public,  are  filed  or  recorded  in 
the  office  of  registry  for  record  for  the  particular  locality. 
Acknowledgment   is   a   prerequisite   to    registration.      (See 


IIOW  CONTRACTS  ARE  MADE  (,^ 

Chapter  XCIX.)      These  have  been  referred  to  alreadv  as 
^r^  under  seal  because  most  of  them  are  evide^S  b; 

§  51.    Express  and  Implied  Contracts 

An  express  contract  is  a  contract  the  terms  of  which  have 
l^en  spoken  or  written  and  agreed  to  by  both  partie       Jt  i 
ri  ts  ir""  TT  ''^  -"t-^-tinction  to'implied  con! 

AniS '7'   ^  '"^'"'"'^  '"^  "°*  ^^'^  express  words, 
nro^r    7   t  '*'"*'^*^*  ''  ^  '^^"^"■^^t  *^t  arises  where  no 

prfce  thaf  Se  £  I"  T^'  '^  ^^^  '"'  ^'^'  "^^  -"y 

Sue     It  .-f    f        ""ght  charge,  but  at  their  reasonable 
value.    It  ,s  not  necessary  that  he  should  promise  to  pay  for 

the  law  holds  that  a  contract  to  pay  for  them  at  what  thev 
the  service  may  claim  compensation  in  court 

rent     uT  Y  u^  '"'P^"'  "  P""*""'^^  *«  P^y  ^  reasonable 

thel  **7~P'^  ^^^'  ^  "^"ning  account  with  each  other 
the  law  considers  that  they  have  promised  each  other  that  S 
one  from  whom  a  balance  is  found  to  be  due  shaU  pay  tha 

that  the  party  has  willmgly  taken  the  benefit  of  what  was  done 
If  somethmg  was  done  for  him  without  his  making  any  rel 
quest,  and  without  his  afterwards  making  any  use  of  U  he 
could  not  be  charged  for  it  ' 

r.n!l'  "^'^T  '""^"""'  ^  "'^"  '"^*  ^''^^  ^t  your  door  every 
morning,  and  you  used  it.  the  law  would  imply  a  promise  o^ 
your  part  to  pay  for  the  bread.  If  he  put  a  n'ew  roofTn  you^ 
house  m  your  absence  without  orders,  he  could  not  collet  for 


64 


CONTRACTS 


It,  because  you  would  have  to  use  the  new  roof  whether  you 
desired  such  repair  or  not.  In  case  the  person  who  performed 
the  service  intended  to  do  it  without  claiming  payment  for  it. 
It  would  be  a  gift  and  there  would  be  no  implied  contract  to 
pay  for  it. 

Note: 

I.  It  is  always  most  satisfactory  to  have  a  distinct 
understanding  as  to  prices  for  services  rendered. 
Even  .lawyers,  dentists,  and  plumbers  are  some- 
times believed  to  overvalue  their  services. 

§  53.    Quasi  Contracts 

It  win  require  close  observation  to  distinguish  implied  con- 
tracts from  quasi  contracts.  A  quasi  contract  is  a  contract 
implied  in  law  from  the  circumstances  and  without  regard 
to  the  intention  of  the  party  who  is  bound.  For  example, 
a  man  staying  at  a  hotel  suddenly  dies.  The  proprietor  of 
the  hotel  calls  in  an  undertaker  who  takes  charge  of  the 
funeral  preparations.  The  undertaker  sends  his  bill  to  the 
executors  of  the  man's  estate.  In  this  instance  there  was  no 
consent  on  the  part  of  the  man  or  his  representatives,  yet  by 
law  it  was  unplied  that  his  estate  should  be  bound  for  the 
obligation,  and  that  there  was  a  quasi  contract  to  that  eflfect. 

The  following  is  another  case  of  quasi  contract :  In  Cali- 
fornia a  law  was  passed  providing  for  a  certain  number  of 
pilots  to  meet  ships  coming  into  the  bay  of  San  Francisco 
and  take  the  ships  in.  Each  ship  was  to  pay  its  pilot  a  certain 
sum.  Therefore,  if  a  pilot  took  the  trouble  to  go  out  to  meet 
a  ship  and  the  officers  did  not  wish  his  services,  he  would  have 
to  be  paid  a  sum,  if  not  the  full  and  usual  fee,  enough  to  pay 
for  his  time  and  trouble  in  meeting  the  ship. 


HOW  CONTRACTS  ARE  MADE 


6S 


§  53.    Executory  and  Executed  Contracts 

An  executory  contract  is  a  contract  that  has  been  made 
Dut  has  not  as  yet  been  carried  into  effect 

.ff  ^AT"u'''  '"""■^'^  ''  *'""  *^t  has  been  carried  into 
effect  by  both  parties.  A  contract  that  has  been  carried  out 
by  one  party  and  not  the  other  would  be  executory  from  one 
pomt  of  view  and  executed  from  the  other  point  of  view. 

§  54.    Conditions  Precedent  and  Subsequent 

fh.  ^r"'^'''°"  P''^"<^«"t  is  something  to  be  performed  before 
fte  otiier  party  can  be  required  to  do  his  part.    It  is  some! 

emptoyment  it  is  necessaiy  to  do  the  stipulated  work  before 
there  IS  any  clami  for  payment.  The  performance  of  the  work 
IS  the  condition  precedent.  (See  also  §§  109  no  ) 
f™.f  TT^^  subsequent  is  a  condition  attached  to  a  con- 
tract the  fulfilment  of  which  will  discharge  the  obligation 
The  simplest  instance  of  this  is  the  purchase  of  goods  wih 
?al,T  !^        '?™"^  "^'"^  ^'*'"  ^  "rtain  number  of 

contrt.  f  1^°'^'  "''  ^'^-  "  *^  ^"^^  ^'^  '^turned  the 
contract  of  sale  is  annulled,  and  the  purchaser  is  not  liable 

it^rSdi:'  '^ '" '''' ''  ^''  ^  ^"^^^^  *°  •^^  *^ 

,«,.f  f^«^]  mortgage  is  another  instance  of  a  condition  sub- 
sequent. If  the  condition  is  performed  and  the  pavment 
«^cured  or  made,  the  chattel  mortgage  becomes  void  and  the 
person  who  makes  the  payment  has  clear  title  to  the  goods. 

§  55-    Void  and  Voidable  Contracts 

leJelli  °'.  unenforceable  contract  is  one  which  has  no 
legal  effect  and  on  that  account  cannot  be  enforced.  It  is  not 
necessarily  an  illegal  contract,  though  an  illegal  contract  would 
DC  a  void  contract. 

A  voidable  contract  is  not  absolutely  void,  but  it  can  be 


I 


66 


CONTRACTS 


avoided  by  one  of  the  parties  concerned.  A  contract  with  a 
minor  can  be  enforced  by  the  minor  but  if  he  does  not  wish 
to  carry  it  out  he  can  avoid  it.    (See  §  38,  "Minors.") 

§  56.    Drafting  a  Contract 

Where  an  important  contract  is  to  be  drawn  up,  a  lawyer 
should  be  employed.  Where  the  contract  involves  nothing 
more  than  a  simple  sale,  a  contract  of  hiring  or  other  ordinary 
busmess  transaction,  any  inteUigent  man  who  knows  how  to 
use  the  English  language  should  be  able  to  draw  up  a  plain, 
understandable  statement  of  what  the  parties  undertake  to  do! 
A  chapter  in  the  latter  part  of  this  book  has  been  given  to  this 
subject.    (See  Chapter  XCVIII,  "Drafting  a  Contract") 


Review  Questions 


I. 


2, 


Qassify  contracts  as  to  grade  or  ease  of  legal  proof.    What  is 

the  difference  between  simple  and  formal  contracts? 
How  must  an  oral  contract  be  proved? 

3.  What  data  should  a  written  contract  contain  ? 

4.  What  is  the  Statute  of  Frauds?    What  was  the  object  of  it? 

By  whom  must  the  required  memorandum  be  signed  ?    Which 
arc  the  contracts  that  must  be  in  writing? 

5.  Where  must  written  contracts  be  signed  in  your  state? 

6.  In  marriage,  is  the  contract  a  written  one? 

7.  When  is  one  liable  for  a  debt,  default,  or  miscarriage  of  another  ? 

Does  a  loan  have  to  be  evidenced  by  writing? 

8.  Is  an  oral  contract  to  sell  real  estate  enforceable  ?    Give  reason 

for  answer. 

9.  What  amount  of  personal  property  would  require  a  written  con- 
tract  for  its  sale  in  your  state? 

Would  a  contract  to  write  a  book  have  to  be  in  writing? 

What  instruments  require  a  seal?  What  form  of  seal  is  re- 
quired ?  What  is  a  contract  by  specialty  ?  What  is  a  covenant  ? 

Define  contracts  of  record.  What  is  a  recognizance?  What  is 
the  object  of  acknowledgment? 


10. 
la. 


HOW  CONTRACTS  ARE  MADE 


67 


13.  What  is  the  difference  between  express  and  implied  contracts? 

14.  What  is  a  quasi  contract? 

15.  What  is  the  difference  between  an  executory  and  an  executed 

contract?     May  a  contract  be  executed  on  one  side  and 
executory  on  the  other? 

16.  What  is  a  condition  precedent?    What  is  a  condition  subsequent ? 

17.  What  is  the  difference  between  a  void  and  a  voidable  contract? 

If  you  contracted  to  rent  a  house  that  burned  before  the  tenant 
moved  in,  would  it  be  illegal?    Would  it  be  a  void  contract? 


CHAPTER  VIII 

EFFECT  OF  CONTRACTS 

§  57-    Illegal  Contracts 

What  constitutes  an  illegal  contract  has  been  explained  in 
§  39.  The  point  to  make  is  that  no  contract  which  is  against 
the  law  or  against  public  policy  can  be  enforced.  If  the  parties 
come  into  court,  both  are  equally  chargeable  with  knowledge 
of  the  law  and  therefore  with  guilt  in  breaking  it;  and  the 
court  will  refuse  to  help  either  or  to  interfere  at  all.  If  one 
of  them  has  been  defrauded  out  of  his  property  by  inability 
to  enforce  the  contract,  that  constitutes  his  punishment  for  en- 
tering  into  such  a  contract  Such  a  party  cannot  get  his 
property  back  nor  can  he  enforce  the  contract. 

There  is  a  legal  maxim  to  the  effect  that  "ignorance  of  the 
law  excuses  no  one/'  This  seems  harsh,  but  it  is  rigidly  en- 
forced. Therefore,  if  there  is  any  doubt  about  the  legality 
of  a  contract,  the  parties  should  assure  themselves  that  it  is 
in  accordance  with  the  law.  Ignorance  or  good  intentions 
will  not  excuse  a  man  if  he  makes  an  illegal  contract  CSee 
also  §  59.)  ^ 

Sunday  Contracts.  In  almost  every  state  contracts  made 
or  to  be  performed  on  Sunday  are  illegal,  unless  they  are  for 
some  purpose  of  charity,  necessity  or  mercy.  To  be  necessary, 
however,  the  thing  done  must  be  something  intended  to  pre- 
serve life,  health  or  property. 

§  58*    Effect  of  Mistakes 

There  are  two  kinds  of  mistakes  possible  in  making  a 
contract: 

6B 


EFFECT  OF  CONTRACTS 


69 


Jl  • 


2. 


A  mistake  as  to  whom  one  is  dealing  with,  what  the 
agreement  is  about,  or  what  is  to  be  done  under 
the  contract. 

A  mistake  as  to  the  quality  or  the  value  of  the  sub- 
ject the  contract  deals  with,  or  its  legal  effect. 

A  mistake  under  the  first  heading  will  mean  that  there  is 
no  contract.  A  party  cannot  be  forced  to  observe  a  contract 
with  someone  with  whom  he  did  not  intend  to  contract  or  in 
regard  to  something  he  did  not  consider.  The  parties  must 
be  considering  the  same  thing  and  must  be  agreed  as  to  what 
is  to  be  done  about  it,  or  there  is  no  meeting  of  their  minds 
and  no  contract. 

If,  however,  there  was  no  mistake  as  to  the  parties,  or  as 
to  what  the  contract  was  about  or  what  was  to  be  done  the 
fact  that  either  or  both  of  the  parties  believed  that  the  subject 
of  the  contract  was  more  or  less  valuable  than  it  actually  was 
will  not  make  any  difference  as  to  its  binding  effect.  An 
agreement  has  been  made  and  they  will  be  held  to  it  even 
if  it  means  loss  to  one  of  them. 

Neither  will  it  make  any  difference  if  either  or  both  of  the 
parties  did  not  realize  that  he  would  be  bound  by  the  contract 
or  did  not  know  just  what  he  was  required  to  do  under  the 
law  to  carry  out  his  agreement.  Every  man  is  supposed  to 
know  the  law,  and  it  is  his  own  fault  if  he  failed  to  find  out 
about  it  in  the  first  place. 

If  a  person  knows  that  the  instrument  he  is  signing  is  a 
contract,  and  fails  to  read  it,  he  will  be  bound  by  it  even  though 
It  is  a  contract  to  do  something  entirely  different  from  what 
he  intended.  No  one  should  ever  sign  contracts  without  read- 
ing them. 

In  case,  however,  through  the  fault  of  some  clerk  in  writ- 
ing the  contract  an  error  of  some  sort  gets  into  the  written 
document  so  that  it  misrepresents  the  actual  agreement  be- 


i 


70 


CONTRACTS 


tween  the  parties,  the  court  will  order  it  rewritten  to  express 
what  they  really  agreed  upon.  That  is,  a  clerical  error  wiU 
be  corrected. 


Note: 
I. 


The  terms  of  a  contract  should  be  written  down 
clearly  and  in  simple  language.  Both  parties 
should  then  read  them  over,  and  any  questions 
that  arise  should  be  cleared  up  before  signing. 
Much  trouble  and  litigation  would  be  saved  if 
this  course  were  followed  in  all  cases. 


§59.    Effect  of  Fraud 

If  there  is  any  fraud  in  inducing  a  party  to  enter  into  a 
contract,  he  may  refuse  to  perform  his  share  of  the  agreement. 
If  the  contract  is  already  carried  out,  he  may  recover  his 
property  or  its  value.  If  he  wants  to  annul  the  contract,  how- 
ever, he  must  return  anything  he  has  received  under  it  unless 
it  has  been  used  up  or  destroyed  at  the  time  he  discovers  the 
fraud.  If  he  prefers,  he  may  let  the  contract  stand  and  claim 
damages  for  any  loss  he  may  have  suffered. 

What  Constitutes  Fraud,  If  any  false  representation  is 
made  by  a  person  who  knows  it  to  be  false  or  has  no  positive 
belief  or  adequate  knowledge  in  regard  to  the  matter,  intending 
to  induce  action  and  to  create  a  false  impression  in  the  other 
party's  mind,  or  to  prevent  him  from  investigating  to  find  out 
the  truth  about  the  transaction,  it  amounts  to  a  fraud.  Mis- 
statements about  unimportant  matters,  or  mere  expressions  of 
opinion  in  recommending  an  article  for  sale,  do  not  affect  the 
contract  The  buyer  must  be  on  his  guard  against  overstate- 
ments of  opinion  by  the  seller  as  to  the  virtues  of  the  article 
he  is  selling.  Overstatements  are  to  be  expected  everywhere. 
When  a  party  relies  on  the  opinion  of  an  expert,  however, 
or  when  he  seeks  advice  from  a  person  in  whom  he  has  a 


EFFECT  OF  CONTRACTS  71 

right  to  repose  confidence,  such  as  a  father,  a  guardian  or  an 
.    attorney,  it  is  a  different  matter.     Then  an  expression  of 
opinion  without  sound  grounds  would  amount  to  fraud 

If  the  reading  of  a  contract  be  dispensed  with  as  the  result 
of  fraud,  the  injured  party  may  refuse  to  live  up  to  the  terms 
of  the  contract,  or  he  may  claim  damages  for  the  injury  sus- 
tamed.  This  rule  holds  good  also  whenever  the  legal  effect 
of  the  contract  has  been  misrepresented  or  when  a  fraudulent 
value  IS  placed  on  that  which  is  being  bought  or  sold. 

The  injured  party  must  act  promptly  as  soon  as  he  dis- 
covers  the  fraud.    By  delay  he  may  lose  his  rights,  since  he  will 
be  considered  to  be  content  with  the  terms  of  the  contract. 
Taking  advantage  of  another  person's  mistake  is  fraud 
In  Shelton  v.  Ellis,  Shelton  &  Co.  learned  of  a  mistake  in 
the  rate  sheet  of  the  Western  and  Atlantic  Railroad  Company 
by  which  the  fare  from  Atlanta,  Ga.,  to  Rogers,  Ark.,  was 
quoted  as  $21.25  when  it  should  have  been  $36.70.    They  in- 
duced Garland,  a  traveling  salesman,  to  buy  a  large  number  of 
tickets  for  them  before  the  railroad  company  discovered  the 
mistake.    The  court  held  that  the  tickets  must  be  returned.^ 

If  any  part  of  the  representations  which  induced  the  other 
party  to  enter  into  the  contract  was  fraudulent  and  had  any 
effect  m  inducing  him  to  agree  to  it,  the  fact  that  most  of  the 
representations  were  honest  will  not  make  the  contract  good 
But  if  the  fraudulent  representations  referred  to  matters  of  no 
consequence  and  were  not  material  to  the  contract  they  will  not 
affect  It.  Also,  if  the  other  party  relied  on  his  own  judgment 
m  the  matter,  rather  than  upon  what  was  told  him,  the  f  raudu- 
lent  misrepresentations  will  make  no  difference. 

What  Fraud  Will  Nullify  a  Contract.  Fraud  in  any  of  the 
negotiations  leading  up  to  a  contract  will  nullify  it  If  fraud 
has  prevented  the  party  from  making  an  independent  investi- 
gation^or  if  it  has  led  him  astray  in  regard  to  the  facts,  it  will 

*  70  Ga.  397. 


72 


CONTRACTS 


make  the  contract  void.  Fraud  not  connected  with  the  im- 
mediate  contract  but  with  previous  negotiations  will  not  affect 
the  present  contract 

Specious  Schemes.    Ordinary  people  of  the  salaried  and 
the  professional  classes  lose  money  running  up  into  millions 
of  dollars  by  investing  in  aU  sorts  of  specious  get-rich-quick 
schemes.     If  they  would  study  the  prospectuses  of  these 
schemers,  they  would  see  how  carefully  they  are  written  so  as 
to  avoid  any  positive  statements  but  to  give  a  strong  impres- 
sion by  a  series  of  carefully  worded  opinions,  estimates,  etc. 
Such  phrases  as,  "it  is  estimated,"  "it  is  expected,"  "there  is 
every  reason  to  believe,"  "it  is  the  opinion  of  old  miners," 
are  used  again  and  again.    It  is  astonishing  how  plausible  a 
prospectus  can  be  made  without  giving  any  positive  statement, 
except  as  to  comparatively  immaterial  matters.    The  important 
matters  in  deciding  upon  an  investment  are: 

1.  The  character  and  the  experience  of  the  manage- 

ment 

2.  The  amount  of  capital  there  will  be  available. 

3.  The  subject  matter  of  the  business. 

On  these  essential  points  there  is  rarely  any  positive  in- 
formation in  prospectuses  of  this  sort. 

Note: 

I.    Consult  your  own  lawyer  or  banker  before  investing 
money. 

§  60.    Duress 

A  party  must  consent  to  a  contract  of  his  own  free  will. 
That  is  the  essential  element  of  an  agreement.  Consequently, 
if  his  will  is  overpowered  by  that  of  someone  else,  the  result 
cannot  be  a  contract  that  will  hold  him. 

There  are  two  ways  in  which  a  person  may  induce  another 
party  to  make  a  contract  against  his  own  free  will.    One  is  by 


EFFECT  OF  CONTRACTS 


73 


the  use  of  intimidation  or  force,  the  other  is  by  taking  ad- 
vantage of  mental  weakness  or  of  affection  to  influence  him. 

If  a  party  signs  a  contract  in  order  to  escape  from  im- 
prisonment or  detention  of  some  kind,  he  has  signed  under 
duress  and  not  of  his  own  free  will  and  the  contract  cannot  be 
enforced.  If  he  signs  it  in  fear  of  immediate  bodily  harm, 
which  he  has  every  reason  to  believe  the  other  party  is  capable 
of  inflicting,  the  same  holds  true.  In  a  case  where  there  is  no 
detention  but  merely  threats,  the  threats  must  be  either  of 
bodily  harm  or  of  imprisonment  to  the  person  himself  or  to 
some  member  of  his  family,  or  of  an  injury  to  his  property, 
and  must  have  been  made  under  such  circumstances  that  a  man 
could  reasonably  believe  that  there  was  immediate  danger  of 
their  being  carried  out 

As  soon  as  a  party  escapes  from  duress  or  from  fear  of  the 
threats  that  coerced  him,  he  may  rescind  his  contract  and  re- 
cover any  property  or  other  consideration,  or  value  therefor, 
that  was  taken  from  him  under  the  contract 

§61.    Undue  Influence 

Undue  influence  is  when  one  party  takes  advantage  of 
another  through  near  relationship,  such  as  that  of  attorney  and 
client,  doctor  and  patient,  guardian  and  ward,  etc. ;  or  when  the 
second  party  is  mentally  weak  and  at  the  mercy  of  his  more 
keen-witted  fellow  men.  A  deficient  person  can  hardly  be  said 
to  exercise  his  own  free  will;  contracts  can  readily  be  imposed 
upon  him  by  others,  and  when  this  imposition  can  be  proved, 
contracts  made  with  him  have  no  legal  standing. 

When  a  person  takes  advantage  of  mental  weakness,  or  of 
near  relationship,  or  of  confidence  reposed  in  him  to  influence 
another  person  to  make  a  contract,  it  is  not  the  free  action  of 
the  second  party  and  is  no  contract.  People  who  are  merely 
friends  are  not  considered  to  be  in  such  a  position  that  the  one 
can  exercise  an  undue  influence  over  the  other.    Where  the 


74 


CONTRACTS 


a  suspicion  of  undue  influence. 

If  die  person  recovers  his  mental  health,  or  is  senaratw! 
from  the  party  who  influen«d  him.  he  may  "fu  e  to  ca  ^ 
o^  bs  contract  and  recover  anything  he  has  tunied  over  to 
the  other  party  under  it. 

His  friends  and  relatives  may  also  act  for  him  in  order  to 
protect  his  property  while  he  is  still  under  the  inZce  of  the 
other  party,  or  too  incapacitated  mentally  to  act  for  h7mif 

Note: 

1.    No  contract  is  of  any  value  unless  it  is  made  by  the 
free  and  unbiased  will  of  both  parties. 

§  6a.    Law  as  to  Alteration 

Any  alteration  in  a  written  contract  by  one  of  the  oarties 
without  the  consent  of  the  other,  makes'the  contra^ 'i" 
effect  as  against  the  other. 

The  parties  to  a  contract  may  alter  it  if  they  can  agree  on 
^e  changes  to  be  made.  If  it  is  a  written  contract,  one  of  th^ 
parties  may  make  the  alterations  in  the  contract  itself  with  the 
consent  of  all  the  other  parties,  or  the  parties  may  m  kTa  „ t 
wntten  contract  If  parties  attempt  to  modify  a  written  con" 
for  I  H-^."  or^^  agreement  there  must  be  a  new  consideration 
for  t  distinct  from  that  of  the  original  contract,  so  that  in 
effect  a  new  and  oral  contract  has  been  made 

mJ  1^,1^''^^^^«^  I^  Ae  same  parties  make  a  new  agree- 
ment  about  the  same  subject  which  is  entirely  inconsistent  with 
the  old  agreement,  the  old  agreement  will  be  regarded  as  set 
aside  by  the  new.    If,  however,  there  is  any  part  of  it  which 

L^f^rTf '"^,  with  the  new,  that  part  still  remains  en- 
forceable.   (  See  also  §  69. ) 

If  one  of  the  parties  to  a  contract  makes  alterations  in  it 
witiiout  the  consent  of  the  other  parties  to  it,  this  amounts 
to  fraud,  and  the  contract  becomes  unenforceable  by  the  guilty 


EFFECT  OF  CONTRACTS 


75 


party.  If  a  person,  not  a  party  to  the  contract,  and  not  acting 
for  any  of  the  parties  to  it,  should  make  alterations  in  it, 
they  would  be  treated  as  though  they  did  not  exist.  The  nature 
of  the  original  contract  could  be  proved  by  the  testimony  of 
the  parties,  and  the  contract  would  be  enforced  as  it  stood 
before  the  alterations  were  made. 

Filling  in  a  Contract  If  the  contract  is  not  complete,  how- 
ever, but  blank  spaces  have  been  left  for  any  of  the  terms  to 
be  filled  in  later,  any  party  to  it  to  whom  it  is  entrusted  may 
fill  out  the  blank  spaces  in  any  way  which  would  be  consistent 
with  the  other  terms  of  the  contract  and  enforce  it  as  he  has 
made  it.  If  he  were  given  instructions  for  filling  it  out,  he 
himself  could  not  enforce  any  other  contract  than  one  that  was 
in  accordance  with  the  instructions,  but  he  might  fill  it  out 
contrary  to  the  instructions  and  transfer  it  to  another  party, 
who,  knowing  nothing  of  the  instructions,  would  be  entitled 
to  enforce  it  as  he  received  it.  This  question  arises  more  often 
in  the  case  of  negotiable  instruments  and  will  be  spoken  of 
under  that  heading.     (See  §  161.) 

Notes: 

1,  The  best  way  to  change  an  existing  contract  is  to 

make  a  new  written  agreement  signed  by  all  the 
.  parties. 

2,  A  new  contract  may  be  made  by  letters  if  they  point 

out  clearly  what  the  new  agreement  is. 

3,  It  is  not  safe  to  leave  any  writlen  instrument  with 

unfilled  blanks. 

§63.    Interpretation  of  Contracts 

A  contract  should  be  so  clear  that  its  meaning  may  be  easily 
understood.  As  a  matter  of  fact,  many  contracts  are  far 
from  clear  and  all  sorts  of  disputes  arise  over  their  meaning. 
A  contract  should  be  interpreted  so  as  to  carry  out  the  in- 
tention of  the  parties  as  nearly  as  may  be.    TTie  court  will 


76 


CONTRACTS 


^  A «™.  .a,  ^  r;,:-  :;tr„r.:  r;,n; 

the  state  where  it  was  entered  into.  we  law  ot 

.     fc  getting  at  the  intention  of  the  parties  where  the  contract 
js  not  dear,  anything  which  is  unessential  and  tends  to  conS 
the  meaning  will  be  disregarded.    If  there  are  two  statemen  I 
which  absolutely  conflict,  the  court  will  considerXleT 
gives  the  true  meaning  and  will  disregard  the  latter 

The  parties  may  bring  in  evidence  to  show  the  meaning 
of  any  technical  terms  which  were  used  Jtr.T  "'^^"'"^ 
wpII  T^r^^:    A       .  •  °^  *°  prove  some 

weU-recogn.zed  custom  or  usage  of  business  which  will  explain 

Srt  ofT"^  "l  "'■*"°  ''^'-  °'  ""*=^  ^y  ^  consider  d 
part  of  the  contract. 

tnese  will  be  read  in  connection  with  it. 

/?«/^.y  /o  Ascertain  Meaning  of  Contracts.    There  are  cer- 
tain general  rules  which  the  court  will  always  follow  to  get 

\?l  TT"^  ""^  ^  '^"*'^"*-  ^^  ^^  that  in  a  printed  form 
which  has  been  filled  out,  if  the  written  and  the  printed  wor^ 
are  inconsistent,  the  court  will  disregard  the  printed  words 
and  follow  the  written  ones.  If  any  words  or  phrases  are 
inconsistent  with  the  rest  of  the  contract,  and  a  clear  intention 
can  be  gathered  from  the  rest  without  them,  the  court  will 
treat  them  as  surplusage. 

^^  If  a  general  term  is  used,  such  as  an  agreement  to  do  the 
mason  work  on  a  building,  and  it  is  followed  by  the  mention 
of  any  specific  kinds  of  mason  work,  such  as  "stone  and  brick 
work,  plastering,  'etc.,  it  is  a  contract  to  do  only  the  special 
kinds  of  mason  work  mentioned  and  not  all  the  mason  work 
on  the  building.  In  order  to  make  a  general  contract  for  all 
the  mason  work,  this  intention  should  be  clearly  stated 

If  any  of  the  terms  of  a  contract  were  intentionally  made 
ambiguous  by  one  of  the  parties  for  the  purpose  of  taking 


EFFECT  OF  CONTRACTS 


77 


advantage  of  the  other  party,  the  court  will  interpret  the 
doubtful  terms  in  the  way  that  will  least  favor  the  party  at 
fault. 

In  trying  to  decide  what  the  parties  intended  where  the 
meaning  is  doubtful,  the  court  will  be  influenced  by  the  words 
and  the  acts  of  the  parties  at  the  time  of  making  the  agree- 
ment, or  the  manner  in  which  they  have  carried  it  out  since. 
Their  manner  of  carrying  out  the  conditions  shows  what  they 
understood  by  the  agreement. 

Notes: 

I.  A  contract  should  always  be  stated  in  the  simplest 
and  most  intelligible  language  possible,  and  the 
parties  should  go  over  it  carefully  to  make  sure 
that  all  of  the  terms  are  clear. 
If  it  be  desired  to  make  it  with  reference  to  some 
particular  business  custom,  it  would  be  well  to 
mention  that  custom  in  the  contract  so  that  there 
can  be  no  doubt  that  both  of  the  parties  under- 
stood that  it  was  to  be  part  of  the  contract. 


mm 


Review  Questions 


I. 


2. 


Is  the  rule  in  regard  to  ignorance  of  the  law  just?  Why  is  it 
enforced?  What  is  the  law  in  your  state  in  regard  to  Sunday 
contracts  ? 

Explain  the  distinction  between  mistake  of  party,  subject  matter 
or  obligation,  and  mistake  of  the  quality,  value,  or  legal  effect. 

3.  What  is  the  effect  of  signing  a  contract  without  reading  it? 

If  the  party  had  dispensed  with  reading  because  of  fraudulent 
statements  of  the  other  party,  would  that  affect  the  situation? 
What  is  the  effect  of  a  clerical  error? 

4.  Broadly,  what  is  the  effect  of  fraud  on  a  contract?     What  is 

fraud  ? 

5.  Distinguish  between  misrepresentation  and  expression  of  opinion. 

When  is  the  expression  of  opinion  liable  to  be  fraudulent? 


78 


CONTRACTS 


7     Sr/rS'".*"''  '^'"'°'"^'  °*  '"°"'*'  P''^"''^  "intake? 

^'        wi«1^,'?K  "P'^^'«="'°"»  »>-«>»  "ake  a  contract  void? 
What  are  the  exceptions? 

&    How  are  proq^ctuses  worded  to  avoid  open  fraud?    What  are 

„     WK  !  ]■"*  .T""  P"'"'*  •"  »"y  proposed  investment? 

9.    Wha   does    duress"  mean?    What  is  its  effect  on  a  contract' 

^V  "T*  ^  """""'  •"""'"""•     What  is  iu  legal  effect 
on  a  contract?  * 

"■    ^aif  *'  "* f"  *V"fr«  "^  ~"'"^'^   What  is  the  best  way 
to  alter  a  contract?    Why? 

It    wkT "'  l^'^'ir'"'^  °^^^  ^»»«  interpretation  of  contracts.    Why> 

It    rt  \f"  """T  "'  '''  ""^^^  '"^  interpreting  contracts?       "^^ 
14.    A  bought  a  cash  register  on  the  statement  that  it  would  save 

AfUT"l'  1  ^  ^^^^^P^'  ^d  one-half  of  the  clerks'  time. 
After  a  short  time  he  alleges  that  the  statement  was  false 
and  seeks  to  rescind  the  sale  on  the  ground  of  fraud.  Was 
this  fraud,  or  statonent  of  opinion,  and  what  is  the  result? 


CHAPTER  IX 

ASSIGNMENT  AND  NOVATION 

§  64.    Assignment  of  Contracts 

A  contract  which  calls  for  personal  services  cannot  be 
assigned  by  either  of  the  parties  to  it.  No  one  can  be  com- 
pelled to  work  for  a  person  unless  he  agrees  to  it;  and  no 
one  can  be  compeUed  to  have  another  working  for  him  whom 
he  did  not  choose,  and  these  conditions  would  result  if  sucli 
contracts  could  be  assigned. 

A  contract  which  depends  on  the  skill,  ability,  or  trust- 
worthiness of  one  of  the  parties  to  it  cannot  be  assigned  by 
that  party,  but  may  be  assigned  by  the  other  party.  For 
example,  a  contract  to  write  a  poem  cannot  be  assigned  by 
the  poet,  but  may  be  assigned  by  the  publisher. 

The  rights  in  any  other  contract  may  be  assigned  by  either 
of  the  parties  to  it  unless  there  is  something  said  in  the  con- 
tract to  forbid  it.  A  party  may  assign  a  contract  by  simply 
handing  the  written  contract  over  to  the  party  to  whom  he 
assigns  it,  or  by  informing  the  other  party  to  the  contract  by 
word  of  mouth  that  he  has  given  up  all  his  rights  under  it  to 
the  person  to  whom  he  wishes  to  assign  it. 

Where  the  party  desiring  to  assign  a  contract  is  under 
obligations  under  the  contract,  he  cannot  assign  these  without 
the  assent  of  the  other  party  to  the  contract  (see  §  65,  "Nova- 
tion") ;  otherwise  he  would  still  remain  liable  for  whatever 
he  had  bound  himself  to  do  or  to  pay  in  the  contract. 

Form  of  Assignment,  The  proper  way  to  assign  a  con- 
tract  is  in  writing,  usually  on  the  back  of  the  contract,  if  it  is 
in  writing,  or  if  it  is  an  oral  contract,  by  a  written  assi^ment. 

79 


8o 


CONTRACTS 


In  the  case  of  contracts  under  the  Statute  of  Frauds,  the  law 
requires  the  assignment  to  be  in  writing.    No  particular  form 
of  words  is  necessary  if  the  intention  to  transfer  all  the  rights 
in  the  contract  is  plain.     (See  Chapter  C,  Forms  i8  and  19.) 
_     Liahhhcs  of  the  Assignee.    A  person  to  whom  a  contract 
IS  assigned  by  one  of  the  parties  becomes  liable  to  perform 
aU  the  duties  of  the  party  who  assigns  the  contract     He  re- 
ceives only  such  rights  as  the  original  party  enjoyed  under 
the  contract    If  the  contract  was  obtained  by  fraud,  duress 
or  undue  influence,  or  the  other  party  to  it  was  not  competent 
to  make  a  contract,  such  other  party  may  refuse  to  perform 
It  just  as  much  as  though  the  assignee  were  one  of  the  original 
parties.  ^ 

If  the  party  who  assigned  the  contract  owed  the  other 
party  anything  which  could  have  been  offset  against  the  con- 
tract, the  other  party  may  offset  that  amount  against  the 
person  to  whom  the  contract  has  been  assigned. 

Rights  of  Assignee.  If  a  party  should  assign  all  his  rights 
under  a  contract  to  one  person  and  afterwards  assign  them 
to  another,  the  second  person  would  get  no  rights  under  the 
contract  If  the  party  assigned  only  part  of  his  rights  to 
the  first  person,  the  second  person  might  enforce  such  rights 
as  remained.  The  second  person  would  be  entitled  to  sue 
for  damages  the  party  who  claimed  to  assign  the  contract 
to  him. 

Subject  to  the  rights  of  the  other  party,  the  person  to 
whom  a  contract  has  been  assigned  may  bring  a  suit  to  enforce 
It  m  all  cases  where  the  party  who  assigned  it  to  him  would 
be  entitled  to  do  so.  In  some  states,  if  he  sues  in  a  court 
of  law,  he  must  bring  his  suit  in  the  name  of  the  person  who 
assigned  the  contract  to  him.  He  may  sue  in  a  court  of  equity 
m  his  own  name.  In  a  case  where  there  have  been  several 
assignments,  the  suit  must  be  brought  in  the  name  of  the  party 
who  gave  the  first  assignment 


ASSIGNMENT  AND  NOVATION 


81 


A  person  to  whom  a  contract  has  been  assigned  should 
notify  the  other  party  to  the  contract  at  once  that  the  rights 
under  the  contract  have  been  assigned  to  him.  If  there  has 
been  an  assignment  to  any  other  parties,  the  one  who  is  the 
first  to  give  this  notice  will  be  entitled  to  have  his  rights  en- 
forced first.  Then,  too,  it  prevents  the  other  party  from  pay- 
ing out  anything  to  the  person  who  has  assigned  the  contract 
If  such  payment  has  been  made  in  ignorance  of  assignment, 
the  party  to  whom  the  contract  has  been  assigned  could  not 
compel  payment  again  to  himself. 

Notes: 

1.  All  contracts  which  do  not  involve  the  personal 

element  may  be  assigned  unless  prohibited  by  the 
law  or  by  public  policy. 

2.  Any  form  of  assignment  which  cuts  off  all  control 

of  the  assignor  over  the  contract  will  be  sufficient 

3.  The  assignee  takes  aU  the  rights  which  the  original 

party  had  in  the  contract,  and  the  contract  is  sub- 
ject to  all  the  defenses  which  have  arisen  prior 
to  its  assignment 

4.  The  assignee  should  always  give  the  other  party 

prompt  notice  that  the  contract  has  been  assigned 
to  him. 

§  65.    Novation 

Novation  is  the  substitution  of  other  parties,  or  another 
party,  for  one  of  the  original  parties  to  the  contract. 

Where  John  Smith  has  an  agreement  with  Henry  Jones 
to  buy  a  horse  for  a  certain  sum,  and  instead  of  doing  so  he 
assigns  the  contract  to  Samuel  Brown,  and  Henry  Jones  agrees 
to  take  Samuel  Brown  as  party  to  the  agreement,  this  is  a 
novation.  Samuel  Brown  has  been  substituted  for  John  Smith 
in  the  contract,  which  can  now  be  enforced  against  him, 
Samuel  Brown. 


82 


CONTRACTS 


Agreement  of  ParHes.  In  order  to  constitute  a  good 
novation,  all  the  parties  must  agree  to  the  arrangement.  Henry 
Jones  must  discharge  John  Smith  from  his  agreement  to  pay 
for  the  horse,  and  take  Samuel  Brown's  agreement  in  place 
of  It;  John  Smith  must  have  assigned  all  his  interest  in  the 
contract  to  Samuel  Brown,  whose  agreement  to  pay  for  the 
horse  is  the  consideration  for  Henry  Jones's  acceptance  of 
him  as  a  substitute  for  John  Smith,  If  any  of  these  considera- 
tions  are  lacking,  the  novation  will  not  be  enforceable. 

In  Ford  V.  Adams,*  Jacob  Schyer  owed  Ford  some  money 
He  gave  a  written  order  to  Adams,  who  owed  him,  Schyer 
to  deliver  40  cords  of  wood  to  Ford.  Ford  accepted  the 
substitution.  Adams  did  not  deliver  the  wood,  and  Ford 
sued  him  for  it.  The  court  said  that  there  was  not  a  good 
novation,  because  it  was  not  shown  that  Schyer  had  released 
Adams's  debt  to  him,  and  without  that  there  would  be  no 
consideration  to  Adams  for  his  promise. 

Notes: 

1.  To  constitute  a  good  novation,  the  other  party  to 

the  contract  must  accept  the  substitution  and  must 
release  the  party  making  it  from  his  obligation 
to  him, 

2.  The  party  making  the  novation  must  assign  to  the 

new  party  all  his  interest  in  the  contract. 

3.  All  of  the  parties  must  accept  the  new  arrangement. 

Review  Questions 

1.  Why  cannot  a  contract  for  personal  services  be  assigned? 

2.  Can  a  written  contract  be  assigned  orally? 

3.  Write  an  assignment  of  a  written  contract. 

4.  What  does  the  assignee  of  a  contract  have  to  do? 


ASSIGNMENT  AND  NOVATION 


83 


5.  What  rights  would  an  assignee  have?    Can  an  assignor  relieve 

himself  of  his  liability  under  a  contract  by  making  an  assign- 
ment? 

6.  Why  should  an  assignee  notify  the  other  party  to  the  contract 

promptly  ? 

7.  What  is  novation?    How  many  parties  to  a  novation? 

8.  Distinguish  a  novation  from  an  assignment. 

9.  Write  an  assignment  of  an  account. 


^  a  Barb.  (N.  Y.)  349. 


CHAPTER  X 

DISCHARGE  OF  CONTRACTS 
§  66.    Discharge  by  Perfonnaiice 

The  usual  way  to  discharge  a  contract  is  by  performance 
or  fulfihnent  This  means  performance  by  both  of  the  parties. 
Performance  by  only  one  of  the  parties  releases  that  party 
from  liabiKty  on  the  contract,  but  does  not  discharge  the 
contract  or  release  the  other  party  from  his  obligation. 

Under  the  old  common  law  rule,  the  performance  must 
be  strictly  in  accordance  with  the  provisions  of  the  contract. 
This  has  worked  so  much  hardship  and  real  injustice  that 
equity  has  modified  the  doctrine,  and  allows  a  substantial  per- 
formance with  damages  to  compensate  the  other  party  for 
any  loss  he  has  sustained 

Substantial  Performance  in  Construction  Contracts.    If 
the  variations  in  performance  of  an  agreement  were  inten- 
tional, they  would  amount  to  breach  of  the  contract.    Where 
they  were  not  intentional,  the  other  party  is  entitled  to  deduct 
from  the  price  the  value  of  any  such  omissions  as  there  may 
have  been,  and  to  have  them  repaired  himself  if  he  desires. 
This  rule  applies  especially  to  construction  contracts,  and  even 
in  an  action  at  law  substantial  performance  will  be  sufficient. 
In  Heckman  v.  Pinkney,  Heckman  had  a  contract  to  do 
the  carpentry  work  on  a  house  that  was  being  built  for  Pink- 
ney.   He  failed  to  make  cornices  and  to  put  centerpieces  in 
some  of  the  rooms  according  to  the  agreement;  and  the 
material  for  deadening  the  floors  did  not  have  hair  in  it,  as 
had  been  stipulated.    The  court  said  that  the  variations  were 

84 


DISCHARGE  OF  CONTRACTS 


85 


not  intentional  or  material,  and  that  the  contract  had  been 
substantially  performed.* 

At  law,  time  is  of  the  essence  of  a  contract;  that  is, 
performance  must  be  within  the  time  specified,  or  the  party 
guilty  of  delay  will  be  liable  for  damages  for  non-performance. 
If,  however,  the  injured  party  accepts  performance  after  it 
is  due,  he  must  pay  the  fair  value  of  what  is  done,  though 
he  is  allowed  to  deduct  damages  for  the  delay. 

In  equity,  time  is  not  of  the  essence  of  the  contract  unless 
it  has  been  expressly  agreed  that  it  shall  be.  That  is,  a  court 
of  equity  will  often  enforce  the  contract  in  favor  of  the  party 
who  has  delayed,  unless  in  fact  or  by  express  agreement  failure 
to  perform  on  time  amounts  to  failure  to  perform  at  all. 

Where  the  parties  agree  that  the  contract  must  be  per- 
formed  to  the  satisfaction  of  one  of  them,  nothing  which 
does  not  satisfy  him  will  be  performance.  At  the  same  time, 
he  must  be  honest  about  his  dissatisfaction  and  not  pretend 
to  be  dissatisfied  when  he  is  not  really  so.  Sometimes  there 
is  an  agreement  that  the  judgment  of  a  third  person  shall  be 
the  test  as  to  whether  the  contract  is  performed  or  not.  In 
such  case,  the  contracting  parties  must  abide  by  his  judgment, 
unless  he  is  mistaken  or  fraud  is  shown. 


Notes: 


I. 


2« 


Performance  must  be  substantially  in  accordance 
with  the  terms  of  the  contract. 

Where  time  is  material  to  the  contract,  the  per- 
formance must  be  within  the  time  set. 

Where  the  parties  agree  that  the  performance  must 
be  to  the  satisfaction  of  one  of  them,  or  to  the 
satisfaction  of  a  third  party,  the  honest  judgment 
of  that  party  is  the  test  of  whether  or  not  the 
contract  has  been  performed. 


«8i  N.  V.  aii. 


86 


CONTRACTS 


i 


§  67.    Discharge  by  Agreement 

.  An  agreement  between  the  parties  to  rescind  a  contract, 
or  a  later  agreement  between  the  same  parties  with  regard 
to  the  same  subject  matter,  the  provisions  of  which  later  agree- 
ment are  inconsistent  with  the  contract,  will  discharge  the 
original  contract. 

The  agreement  to  rescind  the  contract  must,  like  all  other 
agreements,  conform  to  all  the  rules  governing  contracts.  The 
release  of  one  party  from  his  obligations  is  the  consideration 
for  the  release  of  tht  other  from  his.  But,  where  one  party 
has  performed  his  part  of  the  contract,  there  must  be  some 
new  consideration  to  him  for  releasing  the  other,  or  the  agree- 
ment to  rescind  will  not  be  enforceable. 

There  is  only  one  case  in  which  the  parties  may  not  agree 
to  cancel  a  contract,  and  that  is  when  it  was  made  for  the 
benefit  of  a  third  person  and  the  third  person  has  notified 
them  that  he  accepts  it    At  any  time  before  he  accepts  they 
may  declare  the  contract  void.    For  instance,  a  farmer  might 
come  into  town  and  tell  a  storekeeper  to  send  away  and  get 
a  suit  of  overalls  for  his  hired  man  and  he  would  pay  for 
them.    He  informs  the  hired  man  of  what  he  has  done  and 
the  hired  man  tells  the  storekeeper  that  he  will  call  for  the 
overalls  when  they  are  expected.    At  any  time  before  the  hired 
man  told  either  the  farmer  or  the  storekeeper  that  he  would 
take  the  overalls,  they  might  have  cancelled  the  contract,  but 
not  afterwards.    In  all  the  states,  with  the  exception  of  Massa- 
chusetts, Michigan,  New  Hampshire  and  Vermont,  a  third 
person  may  maintain  an  action  for  the  breach  of  a  contract 
for  his  benefit 

If  two  parties  to  an  agreement  make  a  new  agreement 
about  the  same  subject  matter  which  is  inconsistent  with  the 
old  agreement  in  any  way,  the  old  agreement  will  be  dis- 
charged to  that  extent.  For  instance,  in  an  agreement  of 
novation  (see  §  65),  by  accepting  the  substituted  party,  the 


DISCHARGE  OF  CONTRACTS 


87 


2. 


Other  party  discharges  the  party  making  the  novation  from 
his  obligations  under  the  contract 

If  the  parties  put  an  oral  agreement  into  writing  or  instead 
of  a  written  agreement  make  a  new  contract  under  seal, 
the  old  contract  is  discharged  and  they  are  bound  only  by 
the  new  agreement. 

Notes: 

I.     The  parties  may  agree  together  to  rescind  a  con- 
tract, except  that  where  it  was  made  for  the  benefit 
of  a  third  party,  they  may  not  rescind  it  after  he 
has  given  notice  of  acceptance. 
A  later  agreement,  between  the  same  parties  and 
with  regard  to  the  same  subject  matter,  the  terms 
of  which  are  wholly  or  partly  inconsistent  with  a 
prior  agreement,  revokes  that  agreement  so  far 
as  it  is  inconsistent  with  it 
An  oral  agreement  is  superseded  and  discharged  by 
a  later  written  agreement,  and  a  contract  in  writ- 
ing but  not  sealed  is  superseded  by  a  sealed  in- 
strument. 

§  68.     Discharge  by  Various  Other  Causes 

Operation  of  Law.  A  contract  may  be  discharged  by  the 
operation  of  law.  When  a  contract  is  discharged  by  the 
making  of  a  new  written  or  sealed  contract,  as  has  already 
been  explained  (§  67),  it  is  discharged  by  the  operation  of 
the  law  which  declares  that  a  written  instrument  is  of  greater 
value  than  an  oral  agreement,  a  sealed  instrument  than  a 
written  contract.  When  a  person  goes  into  bankruptcy,  the 
law  discharges  all  of  his  contracts  with  a  few  exceptions. 

Impossibility  of  Performance.  There  are  some  cases  in 
which  impossibility  of  performance  discharges  a  contract.  If 
it  were  for  some  particular  article  which  could  not  be  replaced 
and  the  article  were  destroyed,  or  if  it  were  a  contract  for 


3. 


88 


CONTRACTS 


personal  services  and  the  person  to  render  the  services  became 
ill  or  died,  the  contract  would  be  considered  discharged,  and 
there  would  be  no  liability  for  damages.  The  parties  are 
considered  to  have  realized  that  if  such  a  thmg  were  to  happen 
the  contract  could  not  be  performed,  and  to  have  made  the 
contract  on  the  understanding  that  it  would  be  carried  out 
only  in  case  the  article  were  in  existence  or  the  person  were 
able  to  perform  at  the  time.  If  the  one  party  to  a  contract 
by  his  acts  made  performance  impossible,  it  would  discharge 
the  other  party  from  all  obligation.  Contracts  for  the  pay- 
ment of  money  are  not  discharged  by  the  death  of  either  party, 
but  contracts  involving  personal  skill,  trust  or  confidence  be- 
tween the  parties  are  discharged  by  the  death  of  one  of  die 
parties.  This  does  not,  however,  apply  to  contracts  which 
can  be  carried  out  by  the  executors  of  the  deceased,  such  as 
to  have  a  house  built  or  painted. 

Act  of  God.  Where  the  performance  becomes  impossible 
by  what  is  known  as  an  "act  of  God,"  that  is,  a  tornado,  a . 
hurricane,  a  flood,  a  conflagration,  or  some  other  accident 
or  disaster  amounting  to  a  public  calamity,  the  contract  is 
discharged.  Ordinarily  a  person  takes  the  risk  of  the  contract 
being  impossible  to  perform  if  he  does  not  make  some  provi- 
sion for  it  in  the  agreement,  and  impossibility  of  performance 
is  no  excuse. 

In  the  case  mentioned  in  §  41,  where  the  subject  matter 
was  destroyed  at  the  time  the  contract  was  made,  if  one  of 
the  parties  knew  of  it,  he  will  be  held  liable  for  a  breach  of 
the  contract,  notwithstanding  that  it  is  impossible  for  him  to 
perform  it.  In  the  case  of  a  contract  where  one  of  the  parties 
promises  to  do  one  of  two  things,  if  one  of  those  things  was 
impossible  at  the  time  the  contract  was  made,  he  must  perform 
the  other. 

In  Case  of  War.  When  two  countries  go  to  war,  all 
possibility  of  friendly  relationship  between  them  ceases.    All 


I 


11 


f 


k 


DISCHARGE  OF  CONTRACTS 


89 


contracts  between  their  citizens  on  which  nothing  has  yet  been 
done  are  discharged.  If  anything  has  been  done  by  either 
party  under  a  contract,  and  it  is  possible  to  do  so  without 
injustice  to  either  party,  the  contract  will  merely  be  suspended 
until  the  war  is  over,  when  it  must  be  carried  out  fully  in 
accordance  with  its  terms. 

Effect  of  Strikes.  A  contract  may  provide  in  itself  that 
it  is  to  be  discharged  on  the  happening  of  certain  conditions. 
It  is  very  common  to  provide  against  strikes,  etc.,  in  this  way. 
The  provision,  however,  must  be  in  the  body  of  the  contract 
to  be  good.  A  notice  at  the  top  of  the  firm  letterhead  that 
all  sales  were  to  be  subject  to  strikes  or  accidents  would  not 
form  part  of  a  contract  written  under  such  letterhead. 

As  a  general  rule,  printed  conditions  on  a  letterhead  are 
not  binding  on  the  party  receiving  the  letter.  If  any  matter 
is  important  it  should  be  written  in  the  body  of  the  letter. 

Lapse  of  Time,  Any  contract  is  supposed  to  be  performed 
within  a  reasonable  time.  Even  if  no  time  for  performance 
be  given  in  the  contract,  it  will  nevertheless  be  discharged  if 
a  long  period  of  time  goes  by  without  anything  being  done 
on  it  by  either  party. 

Offer  to  Perform.  If  due  performance  is  offered  by  one 
party  and  is  not  accepted  by  the  other,  the  first  party  is  dis- 
charged. 

Notes: 

Contracts  may  be  discharged: 

I.     By  the  operation  of  conditions  agreed  to  by  the 
parties. 
By  merger  or  alteration  of  a  written  instrument, 
or  by  the  discharge  of  the  party  in  bankruptcy. 
By  lapse  of  time  if  delay  is  unreasonable. 
By  an  offer  to  perform,  if  it  was  refused  by  the 
other  party. 


2. 

3- 
4. 


; 


90 


6. 


CONTRACTS 

By  impossibility  of  performance,  where  the  im- 
possibility is  caused  by  the  act  of  the  other 
party;  by  the  operation  of  law;  by  a  declara- 
tion of  war;  or  by  the  destruction  of  the  subject 
matter  where  the  contract  concerned  a  par- 
ticular article  or  was  for  personal  services;  but 
not  otherwise. 

In  making  contracts  to  handle  orders,  to  carry 
on  construction  work,  etc.,  involving  large 
amounts,  where  there  is  a  possibility  of  strikes 
and  various  labor  disputes  preventing  the  finish- 
ing of  the  work  at  all,  or  at  least  within  the 
tune  hmtted  by  the  contract,  parties  should 
always  provide  against  such  delays.  It  is 
usually  safe  to  have  a  fire  clause,  and  to  pro- 
vide against  destruction  by  floods,  tornadoes 
etc.  ' 


DISCHARGE  OF  CONTRACTS 


9t 


Review  Questions 

^'    ^^  '*  ""^^  ^  *^  discharge  of  a  contract? 

2.  What  IS  meant  by  substantial  performance  > 

3.  What  is  the  rule  as  to  time  of  performance,  at  law?    In  equity? 

,n  W    Vr"  "','"'"'"  performance  to  the  satisfaction  of 
an  interested  party? 

5.  What  is  meant  by  "discharge  by  agreement"? 

6.  If  one  party  had  performed  his  part  of  the  contract,  could  the 

parties  agree  to  rescind?     What  element  would  be  needed 
legally  to  rescind  a  contract? 
«     ^^*  .efff  t  does  the  interest  of  a  third  party  have? 

than  the  old  contract?  ^ 

lo     I^!I  •M'"  f'"*  "/  '^■^"'Pt'y  on  pending  contracts? 

10.    What  IS  the  effect  of  impossibility  on  a  contract?    What  is  the 

situation  when  a  contract  becomes  impossible  but  the  contract 

IS  not  discharged? 


la. 


13 


II.  In  what  cases  does  impossibility  discharge  the  contracts  ?  What 
kinds  of  contracts  are  discharged  by  the  death  of  the  party 
to  perform? 

What  is  the  effect  of  specifying  certain  causes  as  operating  lo 
discharge  the  contract? 

A  father  conveyed  land  to  his  son  on  his  son's  covenanting  to 
pay  an  annuity  to  his  mother  on  her  widowhood.  May  the 
mother  maintain  an  action,  not  being  a  party  to  the  covenant  ? 

14.  B  orally  requested  A  to  do  certain  carpentry  work  around  his 

house  in  the  nature  of  repairs.  B  died.  A  subsequently 
performed  the  work  and  brought  suit  against  the  administra- 
tors for  the  price.  Can  he  recover?  If  so,  why  so;  if  not, 
why  not? 

15.  Does  outbreak  of  war  nullify  contracts  if  it  simply  changes 

prices  ? 

16.  What  is  the  effect  of  lapse  of  time  and  non-performance  ? 

17.  If  one  party  offers  to  perform  and  the  other  party  does  not 

accept,  what  is  the  effect  as  to  each  party? 


ENFORCEMENT  OF  CONTRACTS 


93 


I. 
2. 


CHAPTER  XI 

ENFORCEMENT  OF  CONTRACTS 
§  69-    Breach  of  Contract 

The  obligation  of  a  contract  is  an  obligation  created  and 

The  h   ^^^^^^"f /'^  <=^"^^--^  from  all  other  branches  of  lavv 

possible  to  the  intention  of  the  parties,  and  all  the  rules  of 
imerpreting  contracts  go  back  to  this  fundamental  pHndpIe 
and  are  controlled  by  it*  p""i.ipic 

Failing  to  perform  the  contract. 

Refusing  to  perform  the  contract. 

3-     Making  it  impossible  for  himself  to  perform  the 

contract,  or  denying  that  there  is  such  a  contract. 

Faaure  to  Perform.    If  a  party  breaks  a  contract  by  fail- 

»g  to  perform  it,  the  other  party  must  have  done  all  that  can 

to  b37  >     t'^J""  ""•^"'  *'  '=°"*^"*^  '^^^■•^  "^^  «  -"titled 
to  bnng  suit    If  h.s  part  of  the  contract  was  to  pay  after  the 

If  a  party  was  to  perform  work  or  to  deliver  goods  for 
which  the  other  party  was  to  pay,  he  must  be  able  to  show 
that  he  has  either  performed  or  offered  to  perform  the  work 

hejias^ny  nght  to  claim  damages.    A  party  must  remain 

'Eocyc.  Brit.,  iitb  Ed.,  VoL  VII.  page  38. 

92 


ready  and  willing  and  in  a  position  to  perform  what  he  agreed 
during  the  entire  time  of  the  contract;  it  is  not  enough  once 
to  have  made  the  offer. 

It  is  often  hard  to  determine  just  when  a  contract  has 
been  broken  by  failure  to  perform.  Unless  the  time  within 
which  it  was  to  be  performed  was  an  important  part  of  the 
value  of  the  contract,  the  courts  usually  give  parties  what 
they  consider  a  reasonable  time  in  which  to  complete  it, 
whether  the  contract  sets  a  definite  time  for  its  completion 
or  not. 

A  Reasonable  Time.  The  difficulty  is  to  know  what  the 
court  will  consider  a  reasonable  time.  The  parties  may,  how- 
ever, have  this  determined  beforehand  by  stating  in  the  con- 
tract that  "time  is  of  the  essence  (that  is,  an  essential  part) 
of  this  contract,"  in  which  case  the  court  will  enforce  it 
within  the  time  specified.  Or,  if  this  has  not  been  done,  the 
party  for  whom  the  services  were  to  be  performed  or  to  whom 
the  goods  were  to  be  delivered,  etc.,  may  demand  that  the 
other  party  fulfil  his  part  of  the  contract  within  a  certain 
time  or  he  will  consider  it  broken.  If  he  has  really  given  the 
other  party  a  reasonable  time,  he  will  have  a  right  to  bring 
action  if  the  services  agreed  upon  have  not  been  performed 
within  that  time. 

A  party  is  always  allowed  until  the  last  minute  of  the 
time  set  to  perform,  and  the  day  on  which  the  contract  was 
dated  or  the  demand  made  will  not  be  cotmted  as  a  part  of 
that  time;  for  instance,  if  the  contract  was  dated  or  the 
demand  made  on  July  i,  giving  him  30  days  in  which  to 
perform  the  contract,  the  time  will  not  be  considered  to  have 
expired  until  midnight  of  July  31. 

Refusal  to  Perform.  If  a  party  refuses  to  perform  the 
conditions  of  the  contract  when  the  time  comes  for  per- 
formance, he  also  relieves  the  other  party  from  further  obliga- 
tion and  gives  him  an  immediate  right  to  sue  for  damages. 


94 


CONTRACTS 


ENFORCEMENT  OF  CONTRACTS 


95 


If  a  party  refuses  to  carry  out  a  contract  before  the  time 
for  Its  performance  has  arrived,  in  some  states  the  other 
party  has  a  right  to  regard  this  as  final,  but  in  the  other  states 
he  must  wait  until  the  time  for  performance  has  passed  before 
nc  IS  entitled  to  bring  suit 

When  a  party  notifies  the  other  party  that  he  does  not 
intend  to  perform  his  part  of  the  agreement  and  tells  him 
to  stop  work  on  it.  the  latter,  if  he  accepts  the  noUce,  should 
stop  work  immediately.  He  may.  if  he  prefers,  however. 
Ignore  the  noUce  and  treat  the  contract  as  still  existing  by 
contmmng  to  perform  his  part,  though  he  may  not  coUect  for 
work  performed  after  notice. 

Denial  of  Contract  If  a  party  denies  that  there  is  a  con- 
tract, or  makes  it  impossible  for  himself  to  perform  it  by 
disposing  of  its  subject  matter  in  some  way,  the  other  party 
IS  immediately  relieved  from  all  obligations  and  has  the  ririit 
to  sue  at  once  for  the  damages  he  has  sustained. 

Nates: 

I.    Refusal  to  pcrfonn  a  contract  is  a  breach  of  the 

contract 
Making  it  impossible  for  one's  self  to  perform  a 

contract  is  a  breach  of  the  contract. 
In  either  of  the  cases  cited  above,  the  other  party 

may  abandon  the  contract  and  sue  at  once  for 

damages. 

Failure  to  perform  one  part  of  a  divisible  contract 
is  not  a  breach  of  the  entire  contract,  and  does 
not  excuse  the  other  party  from  performance  of 
the  rest. 

In  case  of  a  breach  by  failure  to  perform,  the  other 
party  must  show  that  he  has  performed  his  part, 
or  was  ready  and  willing  to  do  so,  before  he  can 
claim  damages. 


2. 


5. 


6.  Where  a  contract  has  been  partly  performed  by  one 

party,  the  other  party  must  carry  out  his  part  of 
it,  unless  the  first  party  has  refused  to  perform 
further,  or  the  circumstances  are  such  that  he 
would  not  be  able  to  perform  the  rest  of  it. 

7.  The  party  who  broke  the  contract  must  be  paid  the 

reasonable  worth  of  what  he  has  done  on  it,  unless 
his  breach  of  it  was  wilful  or  the  contract  pro- 
,  vided  that  he  should  have  nothing  unless  he  per- 

formed the  whole. 

§  70.    Remedies  for  Breach  of  Contract 

The  party  who  is  injured  by  a  broken  contract  may  either 
(i)  sue  for  damages,  or  (2)  he  may  abandon  the  contract 
and  sue  for  the  value  of  his  services  or  of  the  goods  furnished. 

The  moment  a  contract  is  actually  broken  the  other  party 
has  a  right  of  action  for  damages,  but  there  must  be  an  actual 
breach.  People  are  inclined  to  rush  into  court  when  they 
think  that  their  contract  rights  are  disregarded,  without  stop- 
ping to  make  sure  that  there  has  actually  been  a  breach. 

When  parties  to  a  contract  agree  on  the  amount  that  shall 
be  paid  in  case  of  breach  or  default,  such  amount  is  called 
liquidated  damages.  The  plaintiff  in  an  action  for  breach 
of  contract  can  sue  only  for  profits  proved  to  have  been  lost, 
and  not  for  estimated  profits  lost.  The  jury  would  judge  the 
amount  of  his  actual  loss  from  the  evidence  submitted. 

Action  for  Breach  of  Contract.  If  an  action  for  breach 
of  contract  is  to  be  brought  at  all,  it  is  best  to  do  it  as  soon 
as  possible  after  the  contract  has  been  broken,  as  the  court 
may  consider  that  a  person  has  voluntarily  surrendered  his 
right  if  he  waits  too  long,  or  possibly  something  may  happen 
that  will  excuse  the  other  party  from  performance.  But  there 
is  one  class  of  contracts  in  regard  to  which  a  great  deal  of 
care  must  be  taken  when  bringing  suit;  these  are  contracts 


9^ 


CONTRACTS 


I 


li 


."«"otr„"r  "^"^/P^'^^  -«-'y  separate  irom  and  hav- 
ing no  connecbon  with  each  other.    If  it  is  perfecUv  clear 

XS  oi:roT^''  ^"^  -^^' "-  ^  rfg^tttuet: 

riX       ,.      t.  ^^^  P*"^"  *'  «""  without  affecting  his 

ofwarir  "■"'  ''  *^  ^°"^'^'=*-  ^-  instance,  a  bfeal 
ftat  warSit'"  T*''''  "''"^'^  ^^'^  ^  "^'  '«  damages  for 
c^ntrTcr^         °"'  ""  ^^  "^^  ^'^^^""S  the  rest  of  the 

of  th'e  parttTdreXr  ^art^haf '"^^^^^      t'  °"^ 
from  wLf  hoc  K       J        \^      P  ^  "^^  received  any  benefit 

W'Aen  specific  Performance  Can  Be  Had.     There  are 
some  excepuonal  cases  in  which  an  action  for  damages  would 

sons"of''?ule\f '^'"'  """•  "'^"'^  ^^^^  -■*  Ae  two 

wfdith  fof^f         I"  *^J^'  "^  °^  *^'^  f^^^er  until 
IMS  death  for  $2  a  week.    They  later  notified  her  that  thev 

refused  to  perform  the  contract    The  court  said  that  it  loulj 

be  impossible  to  compute  the  damages  with  any  certainTv  as 

t^-sT:lr^U^1r.  "^^  '^"^  of'judgTSac  ! 
Z^r^Si  """^^  f"'^""''  •^•^"'P^'  *^  t^o  sons 

forZL.")  "^^  ^^"^  ^  ^^'  "^P^"'^*^  ^''- 

Instalment  Contracts.     But  in  contracts    for  Jncf 
which  are  to  be  j^rformed  by  instalments,  su«i  as  a  co^raS 
to^r  I.OOO  barrels  of  oil  at  the  rate  of  loo  barrel?  a 

nJ^SbM'-  "*•  ""-^  ^"^    <™'  ""•"«».  befor.  tie  Wgl  co..  „,  «„•„,  b««.e 


ENFORCEMENT  OF  CONTRACTS 


97 


) 


month  until  the  contract  is  completed,  it  is  not  perfectly  clear 
whether  a  failure  to  deliver  one  lot  of  lOO  barrels  would  be 
a  breach  of  the  whole  contract  or  not.  The  courts  in  the 
various  states  hold  different  views  on  this  question.  If  a 
party  brought  an  action  for  damages  at  once,  he  might  find 
himself  cut  off  from  any  further  damages  in  case  of  the  other 
party's  failing  to  deliver  the  rest  of  the  oil;  or  if  he  treated 
the  contract  as  broken  he  might  find  himself  the  one  guilty 
of  breaking  it.  The  only  safe  thing  to  do  in  these  cases  is 
to  consult  a  local  lawyer. 

When  a  contract  is  to  be  performed  to  the  satisfaction 
of  a  party  thereto  or  of  a  third  person,  such  as  an  architect 
or  an  engineer,  the  work  must  satisfy  the  person  designated, 
but,  as  a  general  rule,  the  court  will  hold  him  to  what  it 
considers  reasonable. 

Breach  by  Failure  to  Perform.  A  breach  by  failure  to 
perform  does  not  usually  take  place  until  the  time  for  per- 
formance has  passed.  However,  in  contracts  where  goods  are 
to  be  paid  for  in  instalments,  or  rent  is  to  be  paid  by  the 
month,  if  the  contract  is  an  entire  and  not  a  divisible  con- 
tract, failure  to  deliver  one  instalment  or  to  pay  one  month's 
rent  will  be  a  breach  of  the  entire  contract.  Where  the  con- 
tract is  a  divisible  one,  failure  as  to  a  separable  portion  is  a 
breach  of  that  part  of  the  contract,  and  the  party  may  sue 
on  that  while  the  rest  of  the  contract  is  being  performed. 

It  must  be  borne  in  mind  that  if  the  breach  was  of  one 
provision  of  a  divisible  contract,  the  party  suing  must  show 
that  he  performed  whatever  was  due  from  him  under  that 
provision  before  he  can  claim  damages  for  its  violation. 

A  divisible  contract  is  one  in  which  the  obligation  consists 
of  independent  parts,  not  necessarily  united,  as,  if  one  agreed 
to  deliver  lOO  bushels  of  com  in  March  and  lOO  in  April, 
or  to  deliver  at  the  same  time  50  bushels  of  onions  and  25 
bushels  of  potatoes.     An  agreement  to  do  several  things  at 


\  I. 

I    I 


9K 


CONTRACTS 


several  times  is  divisible,  unless  the  consideration  to  be  paid 
IS  entire.  ^ 

■  Breach  by  Refusal  or  Denial.  Where  the  party  positively 
refuses  to  perform,  or  denies  the  existence  of  the  contract, 
an  action  may  be  brought  at  once  for  a  breach  of  the  contract 
me  other  party  does  not  need  to  do  anything  further  on  the 
contract  himself,  and,  if  he  does  do  anything  further,  cannot 
recover  anything  for  the  extra  work,  for  the  plaintiff  has  no 
nght  to  aggravate  the  damages.  There  must  be,  however,  a 
positive  refusal  to  perform  under  any  conditions. 

Time  to  Bring  Suit.  The  party  has  always  a  right  to 
Ignore  an  intermediate  breach  and  to  wait  until  the  time  for 
final  performance  arrives  before  bringing  suit;  but  if  he  does 
this  he  takes  the  risk  that  some  other  happening  may  dis- 
charge the  contract  before  that  time.  If,  on  the  other  hand 
he  waits  until  the  time  for  performance,  he  is  entitled  to  all 
the  damages  which  he  has  sustained  up  to  that  time.  In  any 
case  professional  advice  should  be  secured  and  followed. 
Notes: 

I.  Where  there  is  a  contract  for  the  delivery  of  goods 
or  the  performance  of  work  by  instalments,  and 
there  is  a  failure  to  perform  one  of  the  parts  of 
the  contract  as  agreed  upon,  a  party  ought  to 
consult  a  lawyer  as  to  his  rights  before  making 
any  statements  to  the  other  party  about  it. 
2.  It  is  always  a  matter  for  serious  consideration 
whether  a  breach  of  contract  justifies  a  remedy 
so  costly  and  uncertain  as  a  suit  at  law.  (See 
Chapter  IV,  "Law  and  Equity.") 

§  71-    l>aw  Governing  Remedy 

It  has  already  been  explained  (§  40)  tiiat  a  contract  is 
interpreted  in  reference  to  the  law  of  the  place  where  it  was 
made,  unless  the  parties  state  that  they  intend  it  to  be  governed 


I 


ENFORCEMENT  OF  CONTRACTS 


99 


by  some  other  law ;  but  if  they  specify  some  other  law  merely 
to  evade  the  law  of  the  place  where  the  contract  was  made, 
the  local  law  will  govern  despite  their  provision. 

In  bringing  an  action  on  a  contract,  the  method  of  bring- 
ing it,  the  right  to  bring  it,  and  the  defenses  that  may  be 
made  to  it,  are  all  governed  by  the  law  of  the  place  where  it 
is  brought,  and  defenses  which  may  be  made  in  some  states 
cannot  be  used  in  others.  The  Statute  of  Limitations  (§72) 
differs  in  the  different  states,  so  that  a  contract  on  which  an 
action  may  not  be  brought  in  one  state  may  be  sued  on  in 
another  if  the  party  to  be  sued  is  subject  to  its  jurisdiction. 


Note: 


I. 


The  place  to  bring  suit  is  a  matter  regarding  which 
it  is  necessary  to  seek  legal  advice. 


§  7a.    Statute  of  Limitations 

The  Statute  of  Limitations  is  the  law  that  specifies  the 
time  limit  within  which  an  action  may  be  brought.  For  the 
sake  of  peace  and  in  order  to  put  some  limit  to  the  time  in 
which  rights  of  property,  etc.,  can  be  upset  by  lawsuits,  laws 
have  been  enacted  in  every  state  providing  that  after  a  certain 
length  of  time  specified  in  the  law  actions  may  not  be  brought 
in  the  courts.  These  laws  apply  to  all  the  various  forms  of 
actions,  including  those  on  contracts.  If  the  contract  is  under 
seal,  the  law  usually  gives  a  longer  time  in  which  to  bring 
action  on  it. 

The  Statute  of  Limitations  begins  to  run,  not  from  the 
date  when  the  obligation  was  made,  but  from  the  date  when 
payment  is  due.  In  cases  in  which  demand  is  necessary  before 
a  party  is  liable,  the  statute  begins  to  run  from  the  time  the 
demand  was  actually  made.  In  the  case  of  a  checking  account 
in  a  bank,  the  time  on  each  check  does  not  begin  until  demand 
is  actually  made  or  some  act  of  the  banker  has  dispensed  with 


CONTRACTS 


(I 


it  If  each  of  tiie  parties  has  an  account  with  the  other,  and 
if  they  clearly  intended  to  balance  these  accounts  against  each 
other,  the  statute  begins  to  run  against  the  balance  at  the  date 
of  the  last  entry. 

A  written  promise  to  pay  the  debt  is  sufficient  to  renew 
the  contract  and  to  furnish  a  new  date  from  which  the  statute 
runs.  A  part  payment  of  principal  or  interest  of  the  sum 
due  will  likewise  renew  the  contract. 

Sometimes  the  Statute  of  Limitations  provides  that,  after 
the  time  specified,  the  party  shall  have  no  further  right  of 
action.  This  means  that  the  cause  of  action  is  dead  altogether, 
and  thus  cannot  be  enforced  anywhere.  If  the  law  of  the 
state  where  the  contract  was  made  has  such  a  statute,  the 
contract  cannot  be  sued  on  anywhere  after  that  time  has 
passed,  because  the  statute  is  said  to  "go  to  the  right  of  suit" ; 
that  is,  it  ceases  to  exist. 

Usually,  however,  the  Statute  of  Limitations  merely  "goes 
to  the  remedy";  tiiat  is,  the  cause  of  action  remains,  but  tiie 
law  does  not  allow  the  courts  to  enforce  it  after  a  certain 
time,  and,  if  suit  is  brought  after  that  time,  the  other  party 
may  plead  that  the  law  has  barred  the  right  of  remedy.  If, 
however,  the  other  party  does  not  plead  the  Statute  of  Limita- 
tions in  such  a  case,  the  action  may  be  brought,  because  it 
was  passed  only  to  protect  him  from  the  bringing  of  a  suit 
at  a  time  when  he  might  not  be  able  to  get  the  evidence  for 
his  side,  and  if  he  is  willing  to  fight  the  case  on  its  merits 
he  can  do  so. 

Where  the  Statute  of  Limitations  in  the  state  where  the 
contract  was  made  affects  only  the  remedy,  it  does  not  affect 
the  contract ;  and  the  question  as  to  whether  the  action  may 
or  may  not  be  brought  depends  on  the  law  of  the  state  in 
which  it  is  desired  to  sue.  Therefore,  a  contract  on  which  an 
action  could  not  be  brought  in  the  state  where  it  was  made 
might  be  sued  on  and  enforced  in  some  other  state  where 


ENFORCEMENT  OF  CONTRACTS 


loi 


a  longer  time  is  allowed  by  the  Statute  of  Limitations  for 
the  bringing  of  the  action,  provided  the  other  party  lives  there. 

Note  I 

It  is  right  and  just  that  if  a  party  sleeps  on  his 
rights  he  should  lose  his  cause  of  action,  and 
that  men  should  not  have  to  fight  stale  claims. 


I. 


I. 

2. 

3- 


Review  Questions 

To  take  legal  action  against  a  person  who  has  failed  to  perform 

his  part  of  a  contract,  what  must  the  other  party  show? 
What  is  the  rule  as  to  time?    What  is  "reasonable  time"? 
If  a  tailor  was  to  have  a  suit  finished  on  the  20th  of  the  month 

and  it  was  not  ready  till  the  25th,  could  he  hold  his  customer? 

How  would  it  be  if  the  customer  had  told  him  that  he  was  to 

sail  for  Europe  on  the  21st? 

4  If  a  person  had  agreed  to  sell  60  barrels  of  flour  and  10  barrels 

of  apples  and  only  delivered  the  apples,  could  he  collect  the 
agreed  price  for  the  apples?  Why?  Suppose  that  the  price 
of  flour  and  apples  had  advanced  at  the  time  of  delivery, 
how  would  that  affect  the  situation? 

5  If  a  person  is  working  by  the  month  and  leaves  ten  days  before 

the  end  of  his  period  because  he  can  get  a  better  job,  can 
he  collect  for  the  time  he  worked? 

6.  How  soon  is  it  best  to  bring  suit  for  a  breach  of  contract? 

What  is  to  be  considered  before  bringing  suit? 

7.  What  law   governs  the  interpretation  of  a  contract?     Where 

may  suit  be  brought?     Why?  ,.       •     •* 

8.  What  is  the  Statute  of  Limitations  and  on  what  policy  is  it 

founded?    Explain  fully. 

9.  In  the  state  in  which  you  live:  ' 

How  soon  must  a  crime  be  prosecuted? 
How  soon  must  action  be  brought  for  a  personal  injury? 
How  soon  must  action  be  brought  on  an  oral  contract? 
How  soon  must  action  be  brought  on  an  open  account? 
How  soon  must  action  be  brought  on  a  written  contract? 


•  The  data  required  wUl  be  found  in  the  Revised  Stetutes  of  the  State. 


I  ' 


102 


;i 


10. 

II. 

12. 


CONTRACTS 

How  soon  must  action  be  brought  to  recover  land? 
How  soon  must  action  be  brought  on  a  sealed  contract? 
State  two  ways  of  renewing  a  debt  so  that  the  Statute  of  Limita- 
tions  will  recommence  to  run. 

Give  three  ways  that  will  prevent  the  statute   from  running 

against  an  ordinary  debt 
Define  liquidated  damages  in  relation  to  a  building  contract. 
If.  by  admitted  breach  of  contract  of  A.  B's  business  is  stopped 

for  a  period  can  B  recover  damages  for  profits  estimated  or 

only  for  profits  proved  to  have  been  lost? 


I 


! 


CHAPTER  XII 

ACTIONS  ON  CONTRACTS— GENERAL  RULES 

§  73.    Introductory 

Besides  the  particular  provisions  of  the  law  of  the  state 
where  the  action  is  brought,  there  are  certain  general  rules 
which  apply  to  actions  anywhere. 

Assigned  Contracts.  Where  a  contract,  or  a  cause  of 
action  arising  out  of  a  contract,  has  been  assigned,  the  party 
to  whom  it  has  been  assigned  must  bring  the  action  in  the 
name  of  the  party  to  the  contract  from  whom  he  received 
it,  unless  there  is  a  law  allowing  him  to  sue  in  his  own  name. 
This  is  the  rule  of  the  common  law,  but  now  in  most  states 
the  party  who  has  the  actual  interest  in  the  contract  is  allowed 
to  sue  in  his  own  name. 

Joint  Contracts.  Where  there  is  a  joint  contract,  all  the 
parties  to  it  must  be  brought  into  the  action ;  that  is,  if  other 
parties  are  jointly  interested  with  the  party  suing,  he  must 
join  them  with  himself  as  plaintiffs.  If,  however,  they  refuse 
to  join  as  plaintiffs,  the  law  in  many  cases  provides  that  they 
may  be  joined  as  defendants,  in  which  case  the  party  so  join- 
ing them  must  explain  that  they  refused  to  be  joined  as  plain- 
tiffs and  mention  the  statute  by  which  he  is  allowed  to  join 
them  as  defendants. 

If  several  parties  are  jointly  obligated  to  the  plaintiff  by 
the  same  contract,  when  he  sues  he  must  include  them  all 
as  defendants.  If  any  of  the  parties  to  the  contract  are  left 
out  of  the  suit,  they  are  released  from  all  obligations  under 
it,  unless  they  agreed  in  the  contract  to  be  liable  individually 
for  the  whole  contract  apart  from  all  the  others. 

103 


I04 


CONTRACTS 


II 


Assumption  of  Legality,  The  law  always  assumes  that  a 
contract  is  legal  and  proper;  therefore  the  person  who  asserts 
that  it  was  illegal,  or  the  result  of  fraud,  undue  influence, 
duress,  etc.,  must  prove  the  fraud  or  other  allegation. 

Notes: 

1.  The  law  of  the  place  where  the  contract  is  made 

governs  its  interpretation  unless  tlie  contract  ex- 
plicitly specifies  otherwise. 

2.  The  law  of  the  place  where  suit  is  brought  governs 

the  right  to  bring  action  on  it,  and  the  defenses 
which  may  be  made. 

3.  Where  the  Statute  of  Limitations  of  the  place  where 

the  contract  was  made  takes  away  the  right  of 
action,  no  action  may  afterwards  be  brought  on 
the  contract  in  any  state. 

4.  In  suing  on  a  joint  contract,  all  the  parties  must  be 

joined,  either  as  plaintiffs  or  as  defendants. 

§  74.    Specific  Performance 

There  are  some  cases  where  damages  do  not  repay  the 
party  for  what  he  lost  on  the  contract,  as,  for  instance,  if 
the  contract  was  to  buy  some  valuable  work  of  art  which  he 
could  not  duplicate  elsewhere.  In  contracts  for  the  delivery 
of  goods,  where  it  is  possible  for  the  party  to  go  out  and 
purchase  other  goods  of  the  same  nature,  his  loss  can  easily 
be  computed  and  covered  by  damages;  but  where  it  is  im- 
possible to  compute  the  damages,  or  where  the  property  pur- 
chased is  a  work  of  art,  an  heirloom,  or  something  else  which 
cannot  be  duplicated  6r  easily  purchased  elsewhere,  so  that 
damages  do  not  compensate  him  for  his  loss,  the  court  will 
compel  the  other  party  to  perform  the  contract.  This  is 
known  as  "specific  performance,"  and  is  granted  by  what  is 
termed  a  court  of  equity. 


f 


ACTIONS  ON  CONTRACTS — GENERAL  RULES        10$ 

I 

Land,  with  everything  relating  to  it,  is  always  regarded 
as  having  a  peculiar  value;  so  that  a  contract  for  the  sale 
of  land  may  always  be  specifically  enforced. 

In  cases  where  the  contract  is  for  personal  services,  or 
cannot  be  carried  out  because  the  other  party  has  disposed 
of  the  property  involved,  or  for  any  other  cause,  the  court 
will  refuse  to  make  a  useless  decree.  In  the  case  of  personal 
services,  it  is  not  considered  that  any  services  which  the  other 
party  might  perform  in  order  to  escape  imprisonment  would 
be  worth  much.  If,  however,  the  other  party  has  disposed 
of  the  property  or  otherwise  put  it  out  of  his  power  to  per- 
form the  contract  after  the  suit  in  equity  has  been  begun,  the 
court  of  equity,  contrary  to  its  usual  custom,  will  award 
damages. 

Requirements  of  Courts  of  Equity.  The  party  who  brings 
a  suit  in  equity  must  show  that  he  has  not  been  careless  or 
negligent  regarding  his  rights,  but  has  insisted  on  them  and 
promptly  taken  action  to  protect  them.  This  carelessness  and 
negligence  are  known  in  legal  parlance  as  "laches,"  and,  unless 
there  is  some  excuse  for  them,  will  prevent  the  delinquent 
party  from  recovering  in  a  suit. 

The  party  who  brings  such  a  suit  must  also  be  able  to 
show  that  he  has  been  in  all  respects  just  and  fair  himself, 
and  he  cannot  ask  the  court  to  enforce  any  contract  which  is 
in  the  slightest  degree  unfair  to  the  other  party.  He  must 
show,  too,  that  he  has  done  everything  in  his  power  to  fulfil 
the  contract  on  his  own  part,  and,  if  the  other  party  has  pre- 
vented him  from  performing  it,  he  must  show  the  court  that 
he  was  and  is  able  and  willing  to  do  all  that  was  required 
on  his  part 

A  court  of  equity  will  not  enforce  an  illegal  contract,  or 
one  that  has  been  obtained  by  duress,  fraud,  or  undue  in- 
fluence. Nor  will  it  enforce  a  contract  that  is  unconscion- 
able, or  where  an  unfair  advantage  has  been  taken  of  another 


io6 


CONTRACTS 


» 


party's  ignorance  or  inexperience.     (See  Chapter  IV,  "Law 
and  Equity.") 

Notes: 

I.    No  court  will  enforce  a  contract  which  is  illegal  or 
improper. 

Specific  performance  is  granted  only  where  damages 
would  not  compensate  the  party  for  his  loss. 

Courts  of  equity  will  see  justice  done  as  nearly  as 
possible,  and  therefore,  the  party  who  seeks  their 
aid  must  be  prepared  to  do  justice  himself. 


.2. 


3. 


§  7S.    Rules  of  Evidence 

Certain  rules  have  grown  up  with  regard  to  the  admission 
of  evidence  before  a  court.  Some  of  these  rules  have  been 
dictated  by  convenience,  in  order  not  to  take  up  the  time  of 
the  court  unnecessarily;  others  for  the  sake  of  being  fair 
to  both  parties.  Some  of  the  rules  of  evidence  particularly 
concern  contracts. 

An  oral  contract  must  be  shown  by  testimony.  The  testi- 
mony of  the  parties  themselves,  and  of  any  witnesses  who 
were  present  and  heard  the  transaction,  is  competent;  but 
anything  in  their  conversation  or  relations  which  has  no  bear- 
ing on  the  contract  will  be  excluded.  It  often  happens  that 
contracts  are  agreed  upon  between  the  two  parties,  and  each 
remembers  only  the  part  that  favors  himself,  and  in  such 
a  case  a  court  cannot  give  any  relief,  because  the  evidence 
balances.  Where  it  is  not  possible  to  prove  the  making  of 
the  contract  itself  satisfactorily,  evidence  that  the  party  in 
some  way  acknowledged  or  ratified  it,  or  that  he  has  partly 
performed  it,  may  be  introduced  to  show  that  there  was  such 
a  contract. 

Competent  evidence  is  that  which  is  admissible. 

Material  evidence  is  that  evidence  which  applies  directly  to 
the  point  at  issue. 


ACTIONS  ON  CONTRACTS — GENERAL  RULES        107 

Relevant  evidence  is  evidence  relating  to  the  matter  in 
dispute.  "Whatever  naturally  and  logically  tends  to  establish 
a  fact  in  issue  is  relevant  and  that  which  does  not  answer 
requirements  is  not."  ^  Irrelevant  evidence  lacks  close  connec- 
tion with  the  fact  to  be  proved:  is  collateral  to  the  issue. 

The  general  rule  that  hearsay  evidence  is  excluded,  is 
based  on  the  principle  that  a  witness  may  testify  under  oath 
as  to  what  he  himself  has  seen  or  heard,  but  that  there  is  no 
value  in  a  man's  taking  oath  as  to  what  another,  not  under 
oath,  has  told  him. 

The  Burden  of  Proof,  The  burden  of  proof  is  always  on 
the  party  who  makes  an  assertion;  thus  many  cases  fail, 
not  because  the  party  is  in  the  wrong,  but  because  he  cannot 
prove  his  case.  Judges  and  juries  can  act  only  on  evidence 
brought  before  them,  and  if  a  case  is  good  but  there  is  no 
evidence  to  prove  it,  a  court  cannot  give  relief,  and  the  law 
should  not  be  blamed  for  it.  This  is  why  written  contracts 
are  so  important.    (See  §§  42,  43.) 

The  Parol  Evidence  Rule.  The  meaning  of  this  rule  is 
that  other  evidence  will  not  be  admitted  to  vary  the  terms 
of  a  written  contract,  because  the  contract  itself  is  the  best 
evidence  of  what  its  terms  are.  Oral  evidence  may  always 
be  introduced  to  support  the  contract.  Necessarily,  the  per- 
formance of  the  contract,  or  a  breach  of  it,  will  have  to  be 
shown  by  oral  testimony.  The  same  is  true  of  abandonment 
of  the  contract;  and  anything  which  would  show  adequate 
motive  may  be  introduced  as  tending  to  support  the  proof  of 
the  abandonment 

There  are  exceptions  to  the  parol  evidence  rule.  Where 
the  contract  is  not  clear  in  itself,  it  becomes  necessary  to 
resort  to  parol  evidence  to  explain  it.  Any  other  paper  or 
matter  to  which  the  contract  refers  may  be  proved  in  con- 
nection with  it,  and,  if  such  paper  shows  on  its  face  that  the 


>  Jones  on  Evidence,  Vol.  I,  Sec  135. 


loS 


CONTRACTS 


transaction  outlined  was  not  complete,  the  whole  transaction 
may  be  proved.  Oral  evidence  may  always  be  introduced  to 
show  fraud,  duress,  undue  influence,  or  illegality  in  the  con- 
tract. The  rules  of  evidence  may  even  be  stretched  in  such  a 
case  to  allow  the  proof  of  other  transactions  not  directly  con- 
nected with  the  contract  under  consideration,  tending  to  prove 
a  fraudulent  contract. 

Admissions.  A  party  will  never  be  allowed  to  use  his 
own  statements  and  acts  unconnected  with  the  actual  contract 
or  the  transactions  leading  up  to  it,  to  prove  that  there  was 
a  contract,  or  that  what  he  claims  as  to  its  terms  is  true,  but 
he,  however,  may  prove  anything  which  the  other  party  said 
against  his  own  interest,  and  must  also  show  any  other  state- 
ments made  in  connection  with  the  admission  which  might 
have  limited  its  effect 

Where  a  party  employs  an  agent  to  deal  for  him,  any 
admission  against  the  employer's  interest  which  the  agent 
made  at  the  time  of,  or  during  the  transactions  leading  up 
to,  the  contract,  may  be  used  against  the  employer;  but  not 
admissions  which  the  agent  made  after  the  execution  of  the 
contract. 

Books  of  Account  Books  of  account  regularly  and  fairly 
kept  as  books  of  original  entry  supported  by  oath  are  admitted 
as  prima  facie  evidence  of  the  entries  therein  contained.* 

If  the  clerk  who  made  the  entries  is  dead  his  handwriting 
may  be  proved. 

The  rules  in  regard  to  admitting  books  of  account  as  evi- 
dence are  as  follows: 

I.  -  They  must  be  regularly  kept  in  due  course  of  busi- 
ness. 
The  entries  must  be  made  by  the  party  or  an  author- 
ized clerk  at  or  about  the  time  of  the  transactions. 


.2. 


•Jones  on  Evidence,  VoL  III,  i  567. 


ACTIONS  ON  CONTRACTS — GENERAL  RULES        109 

3.  The  books  must  be  identified  by  oath. 

4.  The  entries  must  be  pertinent  to  the  issue. 

5.  The  books  must  come  from  proper  custody. 

■     • 

These  rules  apply  only  to  books  of  original  entry,  not  to 
ledgers  and  other  books  footed  from  original  entries. 

The  books  of  a  deceased  person  may  be  used  as  evidence 
both  for  and  against  him.  The  books,  however,  must  first  be 
properly  proved  by  the  clerk  who  made  the  entries  or  by  some- 
one who  can  testify  as  to  the  handwriting  of  the  deceased. 

Transactions  with  a  Party  Later  Deceased,  In  order  to 
protect  estates  against  fraud,  where  a  person  is  suing  to  en- 
force a  contract  against  the  executor  or  the  administrator  of 
a  person  who  is  dead,  he  will  not  be  allowed  to  testify  to  any 
transactions  with  the  deceased  person,  where  there  were  no 
other  witnesses  present  to  testify  as  to  what  the  deceased 
person  said  or  did.  This  is  very  important  to  remember, 
because,  in  the  case  of  an  oral  contract  where  no  witnesses 
were  present,  the  party  who  is  still  living  might  not  be  able 
to  prove  the  contract  at  all;  and  this  is  another  reason  why 
all  contracts  should  be  reduced  to  writing. 

Notes: 

The  burden  of  proof  is  on  the  party  who  makes  an 
assertion.  % 

Any  evidence,  in  order  to  be  introduced,  must  have 
some  direct  bearing  on  the  contract  itself,  or  on 
the  transactions  connected  with  its  making  and 
discharge. 

Parol  evidence  cannot  be  introduced  to  vary  the 
terms  of  a  written  contract  except  in  case  of 
fraud,  duress,  undue  influence,  or  illegality;  or 
where  the  contract  is  not  complete  in  itself  or  its 
terms  cannot  be  understood  without  reference  to 
outside  circumstances. 


I. 


2. 


3- 


no 


t 


5. 


CONTRACTS 

A  party  cannot  use  his  own  words  and  acts  as 
evidence  in  his  favor;  but  his  admissions  against 
his  own  interest  may  be  used  against  him. 

A  party  may  not  testify  to  his  transactions  with  a 
deceased  person  where  no  other  witnesses  were 
present. 


Review  Questions 

I.  What  is  the  rule  as  to  actions  where  there  are  joint  parties  to 
a  contract? 

a.  Does  a  person  bringing  suit  have  to  prove  that  the  agreement 
was  fair  and  that  the  defendant  went  into  it  voluntarilv> 
Why  not?  ^' 

3.    When  can  a  person  be  compelled  to  carry  out  a  contract?    In 

what  court  would  such  a  suit  be  brought? 
4-    Can  you  give  three  "rules  of  equity"? 

5.  What  is  the  difficulty  in  proving  oral  contracts  ? 

6.  In  a  suit  who  has  the  "burden  of  proof"? 

7.  What  is  the  rule  as  to  parol  evidence?    What  exceptions  to 

this  rule? 

a    What  is  the  rule  as  to  transactions  with  a  man  who  has  since 
died? 

%    What  is  an  admission? 

10.  What  is  meant  by  the  rule,  "Hearsay  evidence  is  excluded"? 

Illustrate. 

11.  What  is  relevant  evidence? 

12.  What  is  competent  evidence? 

13.  State  the  rules  as  to  admission  of  books  of  account  as  evidence 

in  court 

14.  When  are  books  of  account  of  a  deceased  person  admissible 

evidence? 


CriAPTER  Xllf 

TENDER  OF  PAYMENT  OR  PERFORMANCE 

§  76.     Definition 

When  a  person  is  prevented  by  the  other  party  to  the  con- 
tract from  carrying  out  his  part  of  it,  he  may  make  sure  of 
his  own  rights  under  it  by  tendering  (that  is,  offering)  to 
pay  or  to  perform.  The  offer  must  be  made  by  the  party 
himself,  or  by  someone  he  has  authorized,  at  the  time  the 
contract  was  due  to  be  performed,  and  either  at  the  place 
specified  in  the  contract  for  goods,  etc.,  to  be  delivered,  or 
directly  to  the  other  party  or  any  agent  he  has  appointed 
to  receive  them.  For  instance,  if  the  other  party  had  ordered 
goods  to  be  delivered  to  a  railroad  company,  the  goods  might 
be  offered  to  the  railroad  as  an  agent  authorized  to  receive 
the  goods.  It  is  safer,  however,  to  offer  them  to  the  party 
himself,  as  then  no  question  can  arise  as  to  the  validity  of 
the  tender. 

Where  there  are  bulky  goods,  the  person  desiring  to  make 
the  tender  may  ask  the  other  party  to  name  a  place  where 
they  are  to  be  delivered,  and,  if  he  fails  to  do  so,  may  notify 
him  that  the  goods  will  be  delivered  to  him  at  a  certain  time 
and  place  most  convenient  for  that  other  party.  Then  delivery 
at  that  time  and  place  will  be  good  tender  although  the  other 
party  is  not  there  to  receive  the  goods. 

§  77.    Time  to  Tender  Performance 

The  tender  must  be  made  at  the  exact  time  specified  in 
the  contract,  and  before  sunset  on  that  day,  in  order  to  give 
the  other  party  a  chance  to  examine  the  goods,  etc.    A  tender 

III 


112 


CONTRACTS 


before  the  time  for  performance  has  arrived  does  not  meet 
the  requirements  for  a  tender  and  will  not  save  the  rights 
df  the  party  making  it.  If  the  contract  specifies  "on  or  about" 
a  certain  day,  or  "within"  a  certain  time,  a  tender  made  a 
few  days  before  the  day  set  would  be  good.  If  a  party  cannot 
make  the  tender  before  sunset  because  the  other  party  has 
remained  away  aU  day,  he  may  make  it  as  soon  as  the  other 
party  returns. 

If  a  party  positively  states  that  he  will  not  accept  a  tender 
under  any  circumstances,  or  has  the  party  making  it  put  off 
his  premises,  or  refuses  to  hear  him,  it  is  not  necessary  to  make 
the  offer.  The  party  from  whom  tender  is  due  may  explain 
to  the  court,  and  will  be  excused.  Unless  it  is  absolutely 
certain  that  it  will  be  impossible  to  make  a  tender,  however, 
the  party  should  at  least  try  to  make  it.  Only  the  absolute 
certainty  that  the  attempt  would  be  useless  will  excuse  him. 

§  78.     Extent  and  Kind  of  Tender 

The  exact  amount  of  goods  or  money  called  for  by  the 
contract,  including  any  interest  due,  and,  if  the  other  party 
has  begun  an  action  or  suffered  any  damages,  his  expenses 
or  the  damages  due,  also  must  be  offered.  If  it  is  money, 
the  party  should  take  care  that  it  is  in  "legal  tender.*'  This 
really  means,  as  a  usual  rule,  that  too  much  small  change 
should  not  be  offered.  Five-cent  pieces  are  a  legal  tender 
up  to  $5  and  not  over,  while  silver  coins  less  than  one  dollar 
are  a  legal  tender  up  to  $10  and  not  over.  United  States 
treasury  notes,  gold  coins,  and  silver  dollars  are  a  legal  tender 
to  any  amount.  Ordinary  bank  notes  are  not  legal  tender, 
but,  unless  objected  to  at  the  time,  a  tender  in  bank  notes 
would  be  good. 

If  it  is  not  possible  to  ascertain  the  exact  amount,  the 
party  should  take  care  to  offer  more  than  enough,  as  too  little 
will  not  make  a  good  tender. 


TENDER  OF  PAYMENT  OR  PERFORMANCE  1 13 

If  the  contract  called  for  services,  the  tender  will  consist  of 
notifying  the  other  party  that  the  party  is  ready  and  wiUing 
to  perform  the  services  whenever  required. 

A  tender  must  be  made  unconditionally.  The  party  must 
simply  offer  what  is  due  without  calling  for  anything  in  return, 
not  even  a  receipt  or  change,  or  it  is  not  a  good  tender.  In 
all  cases  the  party  making  the  tender  should  be  accompanied 
by  a  competent  witness. 

A  tender  is  held  to  be  vitiated  by  coupling  it  with  a 
demand  for  a  receipt  for  the  sum  offered,  unless,  as  is  the 
case  in  a  few  jurisdictions,  a  statute  exists  which  allows  the 
demand  for  a  receipt.^ 

§  79.    Acceptance  of  Tender 

If  a  party  keeps  property  or  money  that  has  been  left  with 
lum  after  he  has  had  a  sufficiently  long  time  to  examine  and 
refuse  it,  it  amounts  to  an  acceptance  of  the  tender.  If  he 
refuses  to  accept,  the  party  making  the  tender  may  take  the 
goods  or  money  away,  and  inform  the  other  party  that  he  will 
hold  them  subject  to  his  orders;  he  will  then  keep  the  goods 
or  money  separate  from  his  own  property  and  ready  at  all 
times  for  the  other  party  if  he  calls  for  them.  If  the  money 
is  deposited  in  a  bank,  it  must  be  put  in  a  separate  account  and 
not  drawn  upon. 


Review  Questions 

1.  What  is  "tender"  in  legal  phraseology?    When  must  tender  be 

made?    What  will  excuse  tender? 

2.  To  whom  may  tender  be  made,  other  than  to  the  contracting 

party  himself? 
^.    What  is  the  rule  as  to  the  amount  tendered? 


»38  Cyc.  XS4* 


114 


CONTRACTS 


4.  What  constitutes  acceptance  of  tender? 

5.  What  kinds  and  amounts  of  money  are  "legal  tender"? 

6.  What  proofs  should  be  secured  of  fact  of  tender?    Can  a  receipt 

for  the  amount  paid  be  demanded? 

7.  If  tender  is  refused,  what  may  party  making  tender  do? 


CHAPTER  XIV 
JOINT  AND  SEVERAL  CONTRACTS 

§  80.    Contracts  Made  by  More  Than  Two  Parties 

Very  frequently  we  find  contracts  to  which  there  are  more 
than  two  parties ;  and  these  may  be  of  two  kinds,  namely,  what 
is  known  as  a  joint  contract,  in  which  all  the  parties  on  one 
side  agree  to  be  liable  together  for  what  is  promised  in  the 
contract,  eadi  one  being  bound  for  the  whole;  or  a  several 
contract,  where  each  of  the  parties  agrees  to  be  separately 
liable  for  his  part.  In  some  cases  parties  agree  to  be  both 
jointly  and  separately  liable,  and  then  the  person  with  whom 
the  agreement  was  made  has  his  choice  of  holding  all  of  them 
liable  together  or  each  one  liable  separately. 

It  is  unwise  to  become  involved  in  a  joint  contract.    Where 
the  parties  to  a  joint  contract  are  liable : 

1.  Each  is  liable  for  the  whole. 

2.  They  must  be  sued  together,  not  separately. 

3.  Where  one  dies  he  drops  out,  and  the  remainder 

are  liable.    If  all  died,  the  estate  of  the  last  de- 
cedent would  be  liable. 

4.  If  one  party  is  released,  all  are  released. 

Where  the  contract  itself  does  not  expressly  state  whether 
the  parties  are  to  be  liable  separately  or  all  together  for  the 
whole  contract,  the  court  decides  the  nature  of  the  contract 
from  the  probabilities  of  the  case.  If  the  promise  by  two  or 
more  is  in  the  plural,  the  contract  will  be  held  joint,  unless 
by  the  whole  agreement  the  intention  appears  to  hold  them 
severally.    For  instance,  the  ordinary  subscription  agreement 


Il6 


CONTRACTS 


is  a  several,  not  a  joint,  contract,  and  no  one  would  imagine 
that  each  party  who  signed  expected  to  be  held  liable  for  the 
whole  amount  to  be  raised. 

Where,  instead  of  being  an  agreement  by  several  parties 
to  do  something,  the  agreement  was  to  do  something  for  the 
benefit  of  several  parties,  the  test  as  to  whether  it  is  a  joint 
or  a  several  contract  is  whether  the  agreement  has  to  be  per- 
formed for  aU  of  them  together,  or  whether  it  can  be  per- 
formed for  each  one  separately.    Wherever  two  or  more  are 
jointly  to  benefit  by  a  contract,  (i)  aU  must  join  to  bring  suit 
on  the  contract;  (2)  if  one  dies  the  survivors  have  the  legal 
right  to  sue.    If  it  is  a  contract  made  to  a  corporation,  the 
corporation  wiU  be  regarded  as  one  person;  but  all  the  mem- 
bers of  a  firm  wiU  have  to  join  in  any  suit  on  such  a  contract 
If,  on  the  contrary,  it  is  an  agreement  to  perform  services 
for  several  persons  as  individuals,  it  usually  amounts  to  a 
separate  agreement  with  each  of  the  individuals,  and  each  of 
them  may  bring  suit  to  enforce  the  agreement  with  the  first 
party  without  paying  any  attention  to  the  other  persons. 

Where  there  is  more  than  one  person  on  either  or  on  both 
sides  of  a  contract,  it  should  be  stated  in  the  contract  whether 
their  obhgation  is  joint  or  several,  or  whether  the  obligation  to 
them  IS  jointly  or  severally.  To  do  so  will  save  much  trouble 
in  enforcing  the  contract,  as,  if  a  person  brings  suit  on  a  joint 
contract  against  one  person  only,  he  releases  all  the  rest  of 
them  from  their  obligations ;  while,  if  it  were  a  several  contract 
he  may  bnng  suits  against  one  after  the  other  until  he  hai 
managed  to  coUect  the  entire  amount  due  him. 

If  one  of  the  parties  to  a  joint  contract  pays  the  whole 
obligation,  he  may  collect  from  the  others  who  were  bound 
with  him  their  proportion  of  the  amount  he  had  to  pay. 
Notes: 

I.    Where  it  was  cleariy  not  the  intention  of  the  parties  * 
to  be  liable  for  each  other,  the  contract  is  several. 


JOINT  AND  SEVERAL  CONTRACTS 


117 


2. 

4. 

5- 


Where  their  interest  is  identical  and  in  the  whole 

contract,  it  is  joint. 
Where  they  intend  to  be  both  jointly  and  severally 

liable  on  the  whole  contract,  the  contract  is  joint 

and  several. 
A  joint  contract  must  be  enforced  by  or  against  all 

of  the  parties  to  it. 
A  party  to  whom  others  are  jointly  and  severally 

liable  may  sue  all  of  them  together,  or  he  may  sue 

one  at  a  time. 


Review  Questions 

1.  What  is  a  joint  contract?    May  more  than  two  parties  contract 

severally  ? 

2.  What  is  the  liability  of  a  person  who  is  party  to  a  joint  contract? 

3.  If  two  or  more  parties  sign  a  bond  beginning  "We,  the  under- 

signed, are  held  and  firmly  bound,"  etc.,  what  kind  of  contract 

is  it? 

4.  A  note  begins,  "Ninety  days  after  date,  we  or  either  of  us,  promise 

to  pay,"  etc.    What  kind  of  contract  is  it? 

5.  Distinguish  between  a  joint  and  a  joint  and  several  contract. 

6.  What  may  a  person  do  who  has  been  forced  to  pay  the  whole 

amount  on  a  joint  contract? 

7.  Give  examples  of  contracts  that  are  either  joint,  several,  or  joint 

and  several. 


' 


CHAPTER  XV 


CONTRACTS  TO  SELL^ 


§8i.    Sales  and  Contracts  to  Sell 

A  sale  is  a  completed  transaction.  The  ownership  of  the 
goods  has  passed  from  the  seller  to  the  buyer,  even  though  the 
seller  may  still  hold  the  goods  in  his  possession  and  the  price 
may  not  yet  have  been  paid. 

There  is  no  substantial  difference  between  a  sale  and  an 
exchange  or  barter,  and  the  term  "sale"  is  frequently  applied 
to  the  latter  transaction.  But  a  technical  sale  is  a  transfer 
for  a  consideration  in  money,  while  an  exchange  or  barter  is 
a  transfer  of  property  for  other  property. 

A  contract  to  sell  means  that  the  ownership  of  the  goods 
is  to  be  transferred  at  some  time  in  the  future. 

The  definitions  given  in  the  Uniform  Sales  Act  are  as 
follows : 

A  sale  of  goods  is  an  agreement  whereby  the  seller  trans- 
fers the  property  in  goods  to  the  buyer  for  a  consideration, 
called  the  price. 

A  contract  to  sell  goods  is  a  contract  whereby  the  seller 
agrees  to  transfer  the  property  in  goods  to  the  buyer  for  a 
consideration,  called  the  price. 

The  distinction  between  a  contract  to  sell  and  a  sale  is  this: 
in  a  contract  to  sell  the  goods  are  not  delivered  and  title  does 
not  pass;  while  in  a  sale  delivery  is  made  or  the  title  passes. 
A  contract  to  sell  is  an  executory  contract.  A  sale  or  a 
bargain  and  sale  is  an  executed  contract.  A  sale  is  the  transfer 
of  the  property  or  the  thing  from  the  seller  to  the  buyer  for 

>For  forms  of  sales  contracts,  see  Chapter  CI,  Forms  20-25. 

121 


122 


SALES 


a  price.    The  Statute  of  Frauds  applies  only  to  contracts  to 
sell.     (See  §  102.) 

§  83.    Unifonn  Sales  Act 

On  account  of  the  confusion  of  the  law  in  regard  to  com- 
mercial transactions,  commissions  have  been  appointed  by  the 
various  states  to  unite  in  working  out  uniform  laws  governing 
such  transactions.  Largely  as  a  result  of  the  activities  of  these 
commissions,  two  laws  have  been  passed  by  many  states:  (i) 
The  Uniform  Negotiable  Instruments  Law  has  been  adopted 
in  all  of  the  states  and  territories  with  the  exception  of 
Georgia  and  Porto  Rico.  (2)  The  Uniform  Sales  Act  has 
been  adopted  in  the  following  states: 


Arizona 

Connecticut 

Idaho 

Illinois 

Iowa 

Maryland 

Massachusetts 

Michigan 

Minnesota 

Mississippi 

Missouri 

Nevada 


New  Jersey 

New  York 

North  Dakota 

Ohio 

Oregon 

Pennsylvania 

Rhode  Island 

Tennessee 

Utah 

Wisconsin 

Wyoming 

Territory  of  Alaska 


The  object  of  these  acts  is  not  to  change,  but  to  combine, 
the  best  features  of  the  existing  laws  of  the  different  states. 
In  some  cases  the  states  have  adopted  these  acts  with  slight 
modifications,  but  for  all  practical  purposes  the  law  is  imiform. 


CONTRACTS  TO  SELL 


123 


§  83.    What  Is  Necessary  to  the  Contract  of  Sale 

A  contract  of  sale  (or  contract  to  sell)  must  have  the 
same  elements  as  any  other  contract.  In  other  words,  there 
must  be: 

1.  Parties  who  are  competent  to  contract. 

2.  An  agreement  between  those  parties. 

3.  Consideration  for  the  agreement. 

4.  A  legal  contract. 

5.  A  subject  matter. 

These  elements  have  all  been  explained  at  length  in  the 
preceding  chapters  relating  to  contracts  in  general.  ( See  Part 
II.)  A  few  peculiarities  which  concern  sales  alone  will  be 
taken  up  in  the  following  sections. 


Note: 
I. 


A  sale  is  completed  when  the  goods  are  transferred, 
but,  if  the  buyer  was  not  competent  to  make  a  con- 
tract, or  the  contract  was  illegal,  the  seller  could 
not  collect  the  price. 


§84.    The  Agreement 

This  has  been  fully  explained  under  contracts  (§42).  In 
the  sale  and  in  the  contract  to  sell,  there  must  be  the  proposal 
of  terms  on  the  one  hand,  and  the  acceptance  of  those  terms 
on  the  other. 

Notes: 

1.  To  make  a  legal  sale,  there  must  be  an  agreement  of 

the  parties  which  can  be  proved. 

2.  A  written  contract  signed  by  both  parties  is  the  best 

evidence  of  such  an  agreement. 

3.  A  letter  making  an  offer,  which  is  accepted  by  an- 

other letter;  is  the  simplest  form  of  written  con- 
tract. 


134 


SALES 


§  85.    Sales  to  Persons  Incompetent  to  Contract 

The  rules  which  have  been  laid  down  under  the  subject  of 
contracts  (§  38)  with  regard  to  the  contracts  of  certain  per- 
sons  who   are   by   law   made   incompetent   or   are   given 

of  Le  "^""^^'^^  ^"^^  *°  *'°"*'***'  ^^'"'^  "^^  ^  ^^  ^°°''^"=* 
The  exception  to  the  rules  laid  down,  is  an  actual  sale  of 
(not  a  contract  to  sell)  necessaries.  A  person  who  sells 
necessanes  to  a  person  who  is  not  competent  to  make  a  con- 
tract may  recover  a  reasonable  price  (not  necessarily  what  he 
asked)  for  them.  The  Uniform  Sales  Act  says  that  the  goods 
must  be  necessary  at  the  time  they  are  delivered. 

If  a  merchant  furnishes  necessaries  to  a  married  woman 
or  an  mfant,  he  may  charge  them  (i)  to  the  woman  or  the 
infant,  or  (2)  he  may  charge  them  to  the  husband  or  the 
father.  He  cannot  charge  them  to  both.  He  must  make  his 
choice  and  afterward  bring  suit  against  the  party  charged 

In  this  country  necessaries  include  only  food,  clothing,  and 
^elter  of  a  grade  suited  to  the  means  of  the  person  to  whom 
they  are  furnished;  and  in  this  connection  it  is  well  to  bear  in 
nund  that  such  things  as  riding  horses  and  automobiles  are 
not  necessaries. 

Notes: 

I.  In  supplying  necessaries  to  a  minor  or  married 
woman  the  merchant  should  inquire  (i)  whether 
the  incompetent  person  is  already  provided ;  (2) 
whether  he  or  she  has  any  property  from  which 
a  claim  for  necessaries  could  be  collected. 
2.  li  the  incompetent  person  is  an  infant  or  a  married 
woman,  and  the  merchant  desires  to  charge  the 
amount  to  the  father  or  the  husband,  he  should 
inquire  as  to  his  credit. 


CONTRACTS  TO  SELL 


125 


I 


§86.    The  Consideration 

A  sale  or  a  contract  of  sale  which  did  not  name  a  price 
might  still  be  good,  because  the  court  which  was  asked  to 
enforce  it  would  assume  that  the  goods  were  to  be  paid  for  at 
a  reasonable  price  and  charge  the  buyer  accordingly.  The 
price  fixed  may  be  dependent  on  outside  circumstances  that 
would  affect  it,  as  for  instance  the  market  price  at  the  time 
and  place  of  delivery. 

The  general  question  of  consideration  has  been  very  fully 
dicussed  under  "Contracts"  (§  44). 

Note: 
I.     Parties  in  making  a  sale  should  agree  on  the  price. 
Neither  the  seller  nor  the  buyer  may  be  satisfied 
with  what  the  law  will  consider  reasonable. 

§  87.    Nature  of  Subject  Matter 

A  person  might  make  a  contract  to  sell  a  crop  which  he 
had  just  planted,  or  grass  which  might  grow  in  the  future  on 
land  which  he  owned,  or  chickens  to  be  hatched  from  eggs 
which  his  hens  might  lay;  but  if  he  had  not  the  land  or  the 
hens,  he  could  not  make  a  contract  to  sell  grass  on  land  which 
he  might  buy  in  the  future,  or  eggs  from  hens  which  he  might 
later  acquire. 

Goods  which  are  already  in  existence  and  in  shape  to  be 
delivered  may  be  contracted  to  be  sold,  and  also : 

1.  Goods  which  still  require  some  process  to  render  them 

ready  for  delivery ;  i.e.,  cloth  to  be  made  by  a  tailor 
into  a  suit. 

2.  Goods  to  be  acquired  by  the  seller  in  the  future ;  i.e., 

a  commission  merchant  selling  so  many  dozens  of 
eggs  which  he  has  yet  to  buy  from  the  producer. 

3.  Goods  which  may  or  may  not  be  acquired  by  the 

seller  in  the  future,  depending  on  the  happening 


126  SALES 

of  some  condition;  i.e.,  the  same  commission 
merchant  selling  so  many  dozens  of  eggs  provided 
that  he  can  obtain  that  number  from  the  producers. 

4.  An  undivided  share  in  goods;  i.e.,  a  tenth  part  of  a 

crop  of  wheat. 

5.  A  definite  niunber,  weight,  or  measure  of  goods  in 

mass;  i.e.,  a  bushel  of  oats  out  of  a  bin  of  oats. 

Under  the  Uniform  Sales  Act,  the  goods  mentioned  in  i, 
2,  and  3  cannot  be  the  subject  of  a  sale,  but  only  of  a  con- 
tract to  sdl,  since  they  are  not  yet  in  shape  to  deliver. 

§  88.    Destructioii  of  Subject  Matter 

When  the  goods  which  the  seller  is  offering  for  sale  have 
been  entirely  destroyed  without  his  knowledge  at  the  time  the 
agreement  is  entered  into,  the  contract  of  sale  does  not  take 
effect.  When  they  have  been  partly  destroyed,  the  buyer  may 
refuse  to  take  any  of  them,  or  he  may  take  those  which  are  left 
and  pay  the  full  price  which  was  agreed  upon.  In  the  last 
case,  if  the  price  was  divided  up,  as  so  much  a  quart,  a  barrel, 
etc.,  he  may  pay  for  what  he  gets.  If  there  was  one  lump 
price  named  for  the  entire  lot,  he  must  pay  the  entire  amount, 
because  the  court  will  not  attempt  to  split  it  up  for  him.  To 
do  so  would  be  to  make  a  new  contract  for  the  parties. 

If  there  has  been  an  actual  sale  and  the  ownership  of  the 
goods  has  passed  to  the  buyer,  the  loss  falls  on  him  if  they  are 
destroyed  without  fault  of  the  seller,  even  though  they  remain 
in  the  seller's  possession.  If  the  ownership  still  remains  with 
the  seller,  the  loss  would  fall  on  the  seller,  wherever  the  goods 
may  be,'  even  though  on  their  way  to  the  purchaser. 

Goods  are  sometimes  sold  with  the  privilege  of  returning 
if  not  sold  at  a  certain  time.  In  such  a  sale  the  title  passes 
and  in  event  of  destruction  by  fire,  the  buyer  would  lose.  The 
agreement  to  take  the  goods  back  is  a  condition  subsequent. 


CONTRACTS  TO  SELL 


127 


The  case  is  to  be  distinguished  from  that  in  which  the  goods 
are  sent  on  consignment.    (See  §  93.) 

Where  the  contract  was  not  for  any  specific  articles,  but 
only  for  so  many  feet  of  lumber,  bushels  of  wheat,  etc.,  the 
destruction  of  the  wheat  or  lumber  which  the  seller  had  at  the 
time  the  contract  was  made  would  not  excuse  him  from  per- 
forming it.  He  must  go  out  and  buy  more  to  replace  what 
was  lost. 

Note: 

I.  The  agreement  of  sale  should  be  very  definite  as  to 
the  time  when  the  ownership  is  to  pass  from  the 
seller  to  the  buyer.  Much  may  depend  on  this 
fact. 

§  89.    Sales  to  Arrive 

Contracts  are  made  at  times  for  the  sale  of  specific  goods 
to  arrive  on  a  named  ship.  This  arrival  is  a  condition  pre- 
cedent. If  the  goods  do  not  arrive,  or  if  they  arrive  on  another 
ship,  the  contract  is  nullified. 

§  90.    A  Contract  of  Sale  Must  Be  Legal 

Every  contract  must  be  legal  to  be  enforceable.  A  contract 
for  the  sale  of  liquor  in  a  prohibition  state  could  not  be  en- 
forced, and,  if  liquor  had  been  sold,  the  seller  could  not  recover 
the  purchase  price.  This  is  also  true  where  a  license  is  re- 
quired to  sell  any  particular  commodity.  An  unlicensed  seller 
could  not  collect.    ( See  general  discussion  of  illegal  contracts, 

§§  39,  57.) 


Note: 
I. 


Where  there  has  been  an  illegal  contract,  the  courts 
will  leave  both  parties  just  where  they  found  them, 
and  refuse  to  help  either. 


!i 


SALES 


Review  Questions 


I. 


2. 


Distinguish  sale  and  barter.    Distinguish  between  a  sale  and  a 

contract  to  sell. 
Why  is  it  important  to  know  whether  a  particular  contract  is 

an  executed  or  an  executory  sale? 

3.  Why  are  uniform  sales  laws  desirable?    Has  the  Uniform  Sales 

Act  been  adopted  in  your  state? 

4.  Can  there  be  an  executed  sale  of  articles  not  in  existence? 

5.  When  a  seller  ostensibly  makes  a  present  sale  of  goods  which 

are  not  then  in  existence,  what  is  the  effect  on  the  contract  ? 

6.  If  goods  sold  are  partly  destroyed  at  time  of  sale,  what  right 

has  the  buyer? 

7.  If  the  sale  had  been  executed  before  the  damage  happened,  what 

would  be  the  rights  of  the  parties? 

8.  Give  meaning  and  legal  effect  of  a  sale  to  arrive. 

9.  B  made  sales,  without  a  license,  of  kerosene  and  liquor.    Can 

these  accounts  be  enforced  against  the  customers? 
A,  a  retailer,  bought  goods  of  B  with  the  understanding  that 
unsold  goods  would  be  taken  back  at  the  end  of  the  season. 
Fire  destroyed  the  goods  without  fault  of  A,  while  in  A*s 
possession.    Who  bears  the  loss? 


10. 


CHAPTER  XVI 

PASSING  TITLE 

§  91.    Delivery 

In  a  sale — ^not  a  contract  of  sale  (see  §  81) — ^the  delivery 
is  made  at  the  time,  and  there  is  no  question  in  regard  to  the 
passing  of  title  from  seller  to  purchaser.  The  delivery  may 
consist  in  merely  setting  aside  the  goods  for  the  new  owner, 
but  the  title  passes,  and,  if  the  goods  are  afterwards  destroyed, 
the  loss  is  the  purchaser's.  In  one  case  delivery  consisted  in 
giving  the  purchaser  the  key  to  the  building  where  some 
machinery  was  stored.^ 

A  flood  or  a  railroad  accident  which  delays  the  delivery 
of  goods  is  not  an  excuse  for  failure  to  perform  a  positive 
contract.  It  is  a  general  rule  that,  where  an  engagement  to 
do  a  certain  thing  is  positive  in  its  terms,  an  accident,  or 
change  of  conditions,  will  not  excuse  performance.  The 
Japanese,  it  is  said,  look  at  this  matter  exactly  the  other  way, 
and  say  that  if  conditions  change  after  a  contract  has  been 
made  it  would  be  unjust  to  compel  performance. 

§  92.    Selection  Necessary  to  Delivery 

It  is  impossible  to  transfer  the  ownership  of  goods  that 
have  not  been  identified  or  set  aside.  A  contract  to  sell  an 
automobile  of  a  certain  make  does  not  transfer  the  title  to 
any  automobile  until  a  particular  automobile  has  been  desig- 
nated as  the  subject  matter  of  the  contract.  The  precise 
article  or  articles  that  are  to  constitute  the  subject  matter  of 
the  sale  must  be  agreed  upon.    This  means  that  the  subject 

>Kdlogg  Newspaper  Co.  v.  Peterson,   163  111.  158. 

129 


r 


130 


SALES 


matter  of  the  sale  must  have  been  selected.  Usually  the  selec- 
tion is  made  by  the  buyer,  but  in  some  cases  the  buyer  directly 
or  indirectly  authorizes  the  seller  to  make  the  selection  for  him. 

In  the  case  mentioned  in  heading  4  under  §  87,  where 
there  is  the  sale  of  an  undivided  interest  in  goods,  no  actual 
delivery  or  selection  is  necessary.  By  the  sale,  the  purchaser 
acquires  whatever  the  seller's  rights  were  in  the  whole.  If 
the  seller  had  the  right  to  have  his  share  taken  out  of  the  mass, 
the  buyer  would  have  the  same  right ;  if  the  seller  had  a  right 
to  a  proportionate  share  only  in  the  price  received  when  the 
goods  were  sold,  the  buyer  would  get  only  the  same  right.  The 
time,  present  or  future,  when  the  title  will  pass  depends  on 
the  agreement. 

In  a  contract  to  sell,  the  time  for  the  title  to  pass  depends 
on  the  contract ;  if  the  intention  of  the  parties  is  clearly  ex- 
pressed, it  passes  at  the  time  they  have  fixed  upon.  The  rules 
given  in  the  next  section  will  determine  when  it  passes  in  case 
the  intention  is  not  clearly  expressed 

Note: 

I.  Any  act  which  the  parties  intend  to  represent  de- 
livery of  the  goods  will  be  a  sufficient  delivery. 
If  a  suit  of  clothes  has  been  selected  and  set  aside 
for  the  purchaser,  it  becomes  at  once  his  property. 

§93.    When  the  Title  Passes 

The  following  are  rules  for  determining  the  intentions  of 
the  parties  as  to  the  time  at  which  the  title  passes,  i.e.,  at  which 
the  buyer  becomes  the  owner: 

1,  Where  goods  are  picked  out  and  are  in  the  shape  in 

which  they  are  to  be  delivered  at  the  time  the  con- 
tract is  made,  the  buyer  becomes  the  owner  at  that 
time. 

2.  When  the  goods  have  to  be  picked  out,  or  something 


• 


PASSING  TITLE 


131 


further  remains  to  be  done  to  them  before  they  can 
be  delivered,  the  buyer  does  not  become  the  owner 
until  that  is  done. 

3.  When  a  contract  is  made  to  sell  a  certain  number, 

weight,  or  measure  of  goods,  or  goods  to  be  ac- 
quired in  the  future  by  the  seller,  the  buyer  becomes 
the  owner  after  goods  answering  the  description 
in  the  contract  are  turned  over  to  him,  or  he  takes 
possession  of  them. 

4.  (a)  When  goods  are  delivered  "on  trial,"  or  "on 

approval,"  the  buyer  becomes  the  owner  upon  their 
delivery.  He  may,  however,  cease  to  be  the  owner 
and  make  the  seller  again  their  owner  by  returning 
them  or  notifying  the  seller  within  the  time  speci- 
fied in  the  contract,  or  a  reasonable  time  if  none 
was  specified,  that  he  will  not  accept  them. 
(b)  When  the  buyer  lets  the  time  fixed  for  the  re- 
turn of  the  goods  pass  without  returning  them,  or 
keeps  them  beyond  what  is  a  reasonable  time  under 
the  circumstances,  or  signifies  his  approval  and  his 
intention  to  keep  them  either  by  words  or  acts,  he 
becomes  their  permanent  owner. 

5.  If  the  agreement  requires  delivery  to  the  buyer  at  a 

particular  place,  or  pa)mient  of  freight  to  the  buyer 
or  to  a  particular  place,  the  title  does  not  pass 
until  the  goods  have  reached  the  buyer  or  the  place 
agreed  upon. 

6.  When  goods  are  to  be  manufactured  the  title  does 

not  pass  until  they  are  completed  and  delivered 
to  or  accepted  by  the  party  who  ordered  them. 

7.  If  goods  are  ordered  and  shipping  directions  are 

given,  delivery  is  made  when  the  goods  are  de- 
livered to  the  railroad  or  other  means  of  transport. 
After  that  they  are  the  property  of  the  buyer. 


132 


SALES 


Nofe: 


I.    A  contract  to  sell  should  specify  precisely  when  title 
to  the  goods  is  to  pass.  , 

§  94.    Sales  Without  Delivery 

Whether  or  not  there  has  been  a  legal  delivery  such  as 
described  in  §  91,  it  is  always  a  risk  to  leave  property  in  the 
seller's  possession.  In  those  states  where  the  Uniform  Sales 
Act  has  been  adopted,  the  law  makes  a  seller  who  has  the 
goods  left  in  his  possession  the  agent  of  the  buyer  to  sell, 
pledge,  or  otherwise  dispose  of  them.  The  very  fact  that  the 
property  is  in  the  possession  of  the  seller  is  likely  to  mislead 
innocent  third  parties  who  have  no  notice  of  the  sale.  If 
the  seller  was  dishonest  enough  to  sell  the  property  again, 
there  would  be  no  chance  of  recovering  it  from  any  third 
party  to  whom  he  sold  or  pledged  it.  This  is  likewise  the 
case  in  California,  Colorado,  Kentucky,  Maine,  Montana, 
Oklahoma,  South  Dakota,  Vermont,  and  Washington.  The 
laws  in  the  states  enimierated  above  regard  leaving  the  prop- 
erty with  the  seller  as  opportunity  for  fraud  on  other  persons ; 
hence  the  party  who  so  left  the  property  must  lose,  if  the 
goods  are  sold  to  an  innocent  buyer.  This  is  just,  as,  if  a 
man  has  property  in  his  possession  it  is  fair  to  asstune  that 
it  is  his,  and  if  he  sells  it  again,  the  new  buyer  should  be 
protected. 

In  other  states,  the  court  will  presume  that  leaving  the 
property  with  the  seller  amounts  to  a  fraud,  but  the  first  buyer 
may  prove  that  the  sale  to  himself  was  a  real  one,  made  in 
good  faith,  and  not  a  mere  sham  for  the  purpose  of  cheating 
anyone,  Jmd  in  this  way  may  recover  his  property.  If  it  can 
be  shown  in  any  case  that  there  was  no  real  sale,  but  only  a 
pretended  one,  a  creditor  of  the  seller  may  treat  the  goods 
left  with  the  seller  as  belonging  to  the  latter  and  levy  on  them 
in  payment  of  his  claim. 


PASSING  TITLE 


133 


Where  for  any  reason  possession  is  to  be  left  with  the 
seller,  the  only  safe  method  for  the  buyer  is  to  take  a  formal 
bill  of  sale  and  to  file  it  on  record  in  the  proper  office  of 
registry  for  the  locality. 

Notes: 

1.  If  a  sale  is  made  the  seller  should  not  keep  the  goods. 

2.  If  the  seller  is  allowed  to  keep  the  goods  and  sells 

them  to  an  innocent  buyer,  the  first  buyer  or- 
dinarily loses. 

§  95.    Conditional  Sales 

It  is  possible  for  the  seller  to  give  the  purchaser  possession 
of  the  article  that  has  been  sold,  and  still  to  retain  the  ownership 
himself  until  the  full  price  or  a  certain  amount  of  the  price 
has  been  paid.  This  can  be  done  only  by  agreement,  however, 
and  where  sales  are  made  on  the  instalment  plan  it  is  very 
common  to  provide  in  the  agreement  of  sale  that  the  ownership 
shall  not  pass  from  the  seller  to  the  buyer  until  the  last  instal- 
ment has  been  paid.  Such  sales  are  known  as  "conditional 
sales." 

The  law  always  enforces  such  an  arrangement  as  between 
the  buyer  and  the  seller.  For  the  sake  of  ready  proof  and 
avoidance  of  misunderstandings,  the  contract  should  be  in 
writing  and  must  be  so  expressed  in  many  states.  A  common 
plan  is  for  part  payments  to  be  made  as  rent,  with  a  proviso 
that  the  title  passes  to  the  purchaser  when  the  last  instalment 
is  paid. 

The  difficulty  arises  from  the  fact  that,  as  the  buyer  has 
the  property  in  his  own  possession,  third  persons  are  likely 
to  be  misled  into  believing  that  he  owns  it  and  has  the  right 
to  dispose  of  it.  Most  of  the  states  get  around  the  difficulty 
by  providing  that  the  seller  must  file  the  contract  in  an  office 
of  public  record.  Everybody  is  then  required  to  know  that  it 
exists,  as  in  the  case  of  a  mortgage.     If  the  seller  does  not 


1^ 


134 


SALES 


put  the  contract  on  record,  and  the  buyer  is  dishonest  enough 
to  dispose  of  the  property  to  a  third  person  who  had  no 
knowledge  of  the  seller's  rights,  the  seller  loses  the  property 
in  the  majority  of  instances. 

§  96.    State  Laws  on  Conditional  Sales 

In  the  following  states  conditional  sales  are  good  against 
third  parties  without  acknowledgment  or  filing  in  any  public 

office: 

Arkansas  Nevada 

California  Rhode  Island 

Idaho  Tennessee 

Indiana  Utah 

The  District  of  Columbia,  Massachusetts,  Oregon  and 
Louisiana  have  substantially  the  same  law  with  a  few  ex- 
ceptions. 

In  the  following  states  the  contract  recorded  is  merely 

signed  by  the  purchaser: 

Alabama  Montana 

Kansas  New  York 

Maine  Oklahoma 

Maryland  Texas 

Minnesota  Vermont 

West  Virginia 

In  some  of  these  states  more  formality  is  required  if  the 
contract  is  for  the  sale  of  railroad  equipment. 

Those  states  which  demand  a  record  require  different 
formalities  in  order  to  permit  the  contract  to  be  put  on  record. 

§  97.    Requirement  of  Affidavits  to  Conditional  Sales  Contracts 

Some  states  require  an  affidavit  by  the  seller  stating  cer- 
tain facts  of  the  sale.    These  are  Michigan,  Nebraska,  New 


'  \ 
> 


PASSING  TITLE 


135 


Hampshire,  Ohio,  Pennsylvania,  and  Wyoming.  In  others, 
if  the  signature  to  the  contract  is  attested  by  a  witness,  the 
witness  may  prove  it,  and  it  is  then  admitted  to  record ;  very 
few  of  the  states  require  that  the  contract  shall  be  acknowl- 
edged in  person  by  the  buyer.  Colorado,  Connecticut  and 
District  of  Columbia  require  acknowledgment  where  the  sale 
is  over  $100  in  amount.  In  Iowa  it  may  be  acknowledged 
by  either  the  seller  or  buyer  and  is  then  entitled  to  be  ad- 
mitted to  record ;  while  in  Florida  the  seller  must  acknowledge 
in  person,  or  his  or  its  signatures  must  be  proved  by  one  of  two 
subscribing  witnesses. 

§  98.    Rights  in  Illinois  and  Pennsylvania 

In  Illinois  the  rights  of  the  seller  under  a  conditional  sale 
will  not  hold  against  a  third  party  to  whom  the  buyer  may 
have  sold  the  goods.  The  seller  may  protect  himself,  how- 
ever, by  taking  a  chattel  mortgage  on  the  article  sold  and 
recording  that.  In  Pennsylvania  where  the  property  is  not 
attached  or  to  be  attached  to  realty,  the  seller  makes  a  con- 
tract to  lease  the  property,  the  purchaser  to  pay  a  regular 
rental  instead  of  instahnents  and  to  give  back  the  property 
at  the  end  of  the  rental  period.  Then  a  clause  is  added  giving 
the  purchaser  the  right  to  elect  to  keep  the  property  instead 
of  returning  it  at  the  expiration  of  the  lease.  Where  the 
property  covered  is  attached  or  to  be  attached  to  realty,  then 
either  a  conditional  sale  contract  or  a  lease  with  option  to 
purchase  may  be  used,  but  it  must  be  recorded  with  an  affidavit. 

§  99-    Protection  Against  Landlord's  Lien 

In  those  states  where  a  landlord  has  a  lien  on  property 
in  rented  buildings,  the  contract  of  conditional  sale  should  be 
recorded  before  the  property  is  moved  into  the  building  in 
order  to  protect  it  against  his  lien. 

If  fixtures  such  as  gas  and  electric  chandeliers,  etc.,  are 


I 


136 


SALES 


sold  under  a  contract  of  conditional  sale,  they  will  be  pro- 
tected by  recording  the  contract  and  may  be  removed  as 
readily  as  any  other  personal  property.  If,  however,  tlie 
property  sold  was  afterwards  attached  to  the  building 
itself  and  could  not  be  removed  without  injury  to  it,  such 
as  a  mantel  or  built-in  chma  closets  and  book-shelves,  the  onlv 
remedy  which  the  seller  has  is  to  claim  a  lien  against  the 
building  for  the  amount  due  him. 

§  100.    Protection  Against  Destnictioii  of  Property 

Where  the  property  is  destroyed  while  it  is  held  under 
a  contract  of  conditional  sale,  the  decisions  are  in  conflict.  In 
some  states  the  buyer  loses;  in  others  the  seller;  and  in  other 
states  the  matter  has  not  been  decided.  Usually,  under  such 
circumstances,  the  buyer  refuses  to  make  further  payments 
but  may  be  held  Hable  for  the  value  of  the  goods.  Unless 
the  buyer  can  afford  such  a  possible  loss,  it  is  prudent  to 
provide  for  insurance. 

Notes: 

1.  If  a  sale  on  condition  is  to  be  made,  and  the  value 

of  the  article  justifies  it,  a  lawyer  should  be  em- 
ployed. 

2.  If  articles  are  to  be  sold  on  instalments  in  different 

states,  the  laws  of  each  must  be  considered  and 
much  care  will  be  required  in  making  the  con- 
tract* 


Review  Questions 

1.  When  does  title  pass  in  "a  sale"? 

2.  When  does  title  pass  under  a  sale  "on  trial"  or  "on  approval"? 

3.  When  does  title  pass  when  goods  are  manufactured  under  order? 


a  The  standard  authority  on  tliis  general  subject  is  Haring's  "Conditional  Sale 
Laira»"  published  by  the  author.  Fred  Benson  Hartuff,  Buffalo,  N.  Y. 


PASSING  TITLE 


137 


\ 


4.  When  does  title  pass  when  goods  are  ordered  to  be  shipped  by 

rail? 

5.  If  the  buyer  desires  to  leave  the  goods  he  has  bought  with  the 

seller,  how  can  he  protect  his  title? 

6.  If  the  buyer  after  taking  title  leaves  the  goods  with  the  seller, 

who  sells  them  to  a  third  party,  does  the  third  party  take 
good  title  in  your  state?  What  recourse  would  the  original 
buyer  have? 

7.  How  can  the  seller  part  with  possession  and  yet  keep  title?    What 

is  such  an  arrangement  called? 

8.  In  your  state  what  is  the  law  as  to  conditional  sales  ? 

9.  In  your  state  if  a  farmer  bought  a  binder  on  instalments  and 

it  was  burned  down  when  he  had  paid  but  half  the  purchase 
price,  whose  would  the  loss  be? 


*u 


'I 


CHAPTER  XVII 

THE  STATUTE  OF  FRAUDS 
§  loi.    Description  of  the  Statute  of  Frauds 

The  English  law  known  as  the  Statute  of  Frauds  was 
passed  in  1676.  Part  of  this  famous  law  has  been  examined 
in  §  48.  The  part  we  are  here  concerned  with  is  the  seventeenth 
section,  which  in  some  form  has  been  enacted  in  most  of  the 
states  and  is  as  follows : 

No  contract  for  the  sale  of  any  goods,  wares  and  mer- 
chandise, for  the  price  of  ten  pounds  sterling  or  upward  shall 
be  allowed  to  be  good;  except  the  buyer  shall  accept  part  of 
the  goods  so  sold  and  actually  receive  the  same,  or  give  some- 
thing in  earnest  to  bind  the  bargain  or  in  part  payment,  or 
that  some  note  or  memorandum  in  writing  of  the  said  bargain 
be  made,  and  signed  by  the  parties  to  be  charged  by  such 
contract  or  their  agents  thereunto  lawfully  authorized. 

The  Statute  of  Frauds  applies  to  contracts  to  sell,  not  to 
sales. 

"Goods,  wares  and  merchandise"  are  held  in  this  country 
to  include  all  that  is  usually  classed  as  personal  property, 
goods,  chattels,  and  choses  in  action,  i.e.,  accounts,  claims' 
contracts,  stocks,  and  securities. 

A  contract  for  the  sale  of  corporate  stocks  or  bonds  is 
good  if  some  memorandum  is  made  by  the  broker  before  suit 
is  brought 

§  102.    Contracts  to  Sell 

The  definition  in  the  Uniform  Sales  Act  is  given  as  fol- 
lows : 

138 


THE  STATUTE  OF  FRAUDS  139 

A  contract  to  sell  goods  is  a  contract  whereby  the  seller 
agrees  to  transfer  the  property  in  goods  to  the  buyer  for  a 
consideration  called  the  price. 

The  distinction  between  a  contract  to  sell  and  a  sale  is  this: 
in  a  contract  to  sell,  the  goods  are  not  delivered  and  title  does 
not  pass;  while  in  a  sale,  delivery  is  made  or  the  title  passes 
to  the  purchaser. 

§  103.    When  the  Contract  of  Sale  Must  Be  in  Writing 

The  Statute  of  Frauds  discussed  in  §  loi  applies  to  con- 
tracts of  sale  where  delivery  is  to  be  made  later  and  where 
the  value  is  over  a  certain  amount.  This  amount  ranges  from 
$30  in  Arkansas,  Maine,  and  Missouri,  to  $500  in  Arizona, 
Massachusetts,  New  Jersey,  Rhode  Island  and  $2,500  in  Ohio. 

Fifty  dollars  is  usual. 

The  words  "in  value"  apply  where  the  Uniform  Sales  Act 
has  been  passed.  In  the  old  statute,  the  words  were  "in  price." 
The  price  is  the  amount  fixed  by  the  parties  themselves ;  the 
value,  what  the  goods  are  actually  worth  in  the  market.  For 
this  reason,  contracts  purely  by  word  of  mouth  have  become 
more  risky  under  the  Uniform  Sales  Act.  In  order  that  a 
contract  of  sale  above  the  limited  amount  may  be  enforceable, 
a  written  memorandum  of  the  terms  of  the  agreement  must 
be  signed  by  the  party  against  whom  it  is  sought  to  enforce 
the  contract,  or  his  agent. 

The  written  memorandum  of  sale  required  by  the  Statute 
of  Frauds  need  not  be  formal.  It  may  be  a  note,  a  letter, 
a  telegram,  a  receipt,  or  may  consist  of  several  papers  so  con- 
nected as  to  make  an  intelligible  sales-contract.  The  written 
memorandum  of  sale  need  not  be  made  at  the  time  of  the  con- 
tract, but  it  must  state  all  the  material  facts,  the  parties,  the 
price,  if  a  price  was  agreed  upon,  and  specify  the  articles  to  be 
sold.  It  must  be  signed  by  the  party,  or  by  the  agent  of  the 
party  whom  it  is  desired  to  hold.    In  states  where  the  Uniform 


I 

I 


I40 


SALES 


Sales  Act  does  not  prevail,  the  written  memorandum  of  sale 
may  have  to  be  subscribed;  that  is,  signed  at  the  end  of  the 
contract 

Exceptions  to  the  rule  that  a  sale  of  goods  above  the 
limited  amount  must  be  in  writing,  occur:  ( i )  when  the  buyer 
has  paid  part  of  the  price,  or  (2)  where  the  buyer  has  accepted 
and  actually  received  part  of  the  goods.  The  last  two  methods 
of  satisfying  the  statute  wiU  be  considered  in  the  following 
sections. 

Notes: 

1.  Any  contract  of  sale  above  the  specified  minimum 

must  be  in  writing. 

2.  All  contracts  should  be  in  writing. 

§  104.    EsEception  for  Part  Payment 

A  payment  made  at  the  time  of  entering  into  the  con- 
tract of  sale  makes  it  enforceable,  though  it  may  be  above 
the  limited  value.  The  payment  may  either  be  a  part  of  the 
price,  or  something  given  or  paid  to  "bind  the  bargain."  This 
should,  strictly  speaking,  be  in  addition  to  the  purchase  price. 
In  England  this  earnest  is  no  part  of  the  price  of  the  goods. 
Usually  in  this  country  it  is  part  of  the  price.  The  amount 
is  not  material. 

The  thing  delivered  in  part  payment  must  be  of  some 
value,  but  if  of  any  value  at  all,  it  will  be  sufficient  to  bind 
the  bargain.^ 


Note. 
I.- 


Part  payment  will  bind  the  bargain,  but  it  is  no 
evidence  as  to  time,  terms,  and  essentials  of  the 
agreement,  and  it  is  a  poor  substitute  for  a  written 
contract 


THE  STATUTE  OF  FRAUDS 


141 


•Wdr  ▼.  Hndnut,  iij  Md.  5*5. 


§  105.    Exception  for  Part  Delivery 

The  second  case  mentioned  in  §  103  was:  "Where  the  buyer 
has  accepted  and  actually  received  part  of  the  goods.'*  The 
word  "received"  means  taken  into  actual  physical  possession, 
the  word  "accepted"  means  that  the  buyer  must  have  deter- 
mined in  his  own  mind  to  become  the  owner  of  the  goods. 
Both  conditions  must  be  fulfilled  to  make  the  contract  en- 
forceable. The  buyer  may  show  his  consent  to  become  the 
owner  of  the  goods  either  by  his  words  or  by  his  conduct 

The  "part  of  the  goods"  must  be  taken  out  of  the  actual 
amount  of  the  goods  to  be  delivered.  Samples  or  specimens 
which  do  not  come  out  of  the  buyer's  share  are  not  "part  of 

the  goods." 

If  the  buyer  has  directed  the  goods  to  be  delivered  to  a 
railroad  company  for  transportation,  a  delivery  to  the  railroad 
company  is  a  delivery  to  him  and  their  receipt  for  the  goods 
will  be  his  receipt.  If  he  has  not  so  directed,  there  is  no 
receipt  and  acceptance  until  the  buyer  or  his  agent  accepts  the 
goods  from  the  railroad  company. 

Note: 

I.  Although  he  may  have  accepted  the  goods,  the  pur- 
chaser could  still  dispute  the  price,  the  warranties, 
and  the  other  terms  of  the  agreement.  The  writ- 
ten contract  is  the  only  dependable  means  of  prov- 
ing the  agreement. 

§  106.    Exception  for  Amounts  Below  Specified  Value 

Contracts  of  sale  below  the  minimum  established  by  the 
law  need  not  be  in  writing.  If  the  transaction  were  below  the 
value  set  in  any  particular  state,  ^uit  could  be  brought  on  an 
oral  contract ;  i.e.,  a  contract  not  in  writing.  If  it  were  proved, 
it  could  be  enforced,  but  an  oral  contract  is  always  hard  to 
prove.    (See  §46.) 


^ 


142 


SALf£S 


2. 


3. 


If  the  contract  of  sale  is  above  the  minimum  value,  suit 
cannot  be  brought  upon  it  unless  it  is  in  writing.  If  the  parties 
to  such  a  contract  (not  in  writing)  carry  it  out,  it  becomes  an 
executed  sale  and  stands,  as  does  any  other  sale,  but  if  either 
party  refuses  to  carry  it  out,  the  other  cannot  enforce  it  at  law. 

A  single  contract  for  the  sale  of  a  number  of  articles,  each 
of  which  is  below  the  limited  amount  in  value,  must  neverthe- 
less be  in  writing  if  the  value  of  all  together  is  greater  than 
the  limited  amount. 

Notes: 

I.     It  is  safest  to  make  all  contracts  in  writing. 

Any  contract  of  sale  above  the  specified  minimum 
must  be  in  writing  except  in  cases  of  part  pay- 
ment or  part  delivery.  Any  contract  of  sale  below 
the  minimum  should  be  in  writing. 

It  is  never  safe  to  enter  into  any  contract  without 
some  memorandum  in  writing.  Especially  is  this 
true  when  there  is  anything  indefinite  about  the 
possible  value  of  the  goods  to  be  sold. 

§  107.    Exception  for  Work  or  Services 

If  the  article  purchased  involves  work  or  services  which 
make  it  suitable  only  for  the  original  buyer,  the  contract 
may  be  oral.  For  example,  a  man  goes  to  a  dentist  and 
orders  a  set  of  false  teeth.  The  dentist  takes  some  porcelain 
and  other  materials  worth  very  much  less  than  $50  and  out 
of  them  makes  a  set  for  which  he  charges  considerably  over 
$50.  His  work  and  skill  are  what  give  the  teeth  their  value, 
and  the  teeth  which  are  made  for  one  man  cannot  be  sold 
to  another.  In  such  a  case  the  law  says  it  is  the  dentist's 
.•services,  not  the  materials,  for  which  the  man  is  paying,  and 
the  contract  is  not  one  of  sale  and  need  not  be  subject  to  any 
of  the  conditions  mentioned  in  §  103.  That  is,  the  dentist 
can  bring  suit  without  a  written  contract. 


. 


THE  STATUTE  OF  FRAUDS 


143 


If  the  article  to  be  made  is  something  which  can  be  sold 
to  someone  else,  the  contract  is  one  of  sale  and  must  satisfy 
the  requirements  of  the  Statute  of  Frauds. 

The  foregoing  is  a  statement  of  the  law  where  the  Uniform 
Sales  Act  applies.  There  have  been  two  other  views  of  the 
case:  one  of  them,  the  English  rule  that  if  any  article  was 
to  be  made  as  a  result  of  work  and  services,  the  contract 
was  one  of  sale;  the  other,  the  former  New  York  rule,  that 
if  there  was  any  work  to  be  performed  on  the  article,  the 
contract  was  not  a  sale  but  for  work  and  services,  and  the 
Statute  of  Frauds  did  not  apply  to  it.  Either  of  these  two 
rules  may  still  apply  in  a  state  which  has  not  adopted  the 
Uniform  Sales  Act. 


Note: 


I. 


Have  a  written  contract  in  all  cases  where  the  price 
is  more  than  you  can  afford  to  lose. 


I. 

2. 

3- 
4. 


Review  Questions 

Distinguish  between  a  "sale"  and  "contract  to  sell." 

Has  the  Uniform  Sales  Act  been  adopted  in  your  state? 

In  your  state  what  is  the  amount  over  which  contracts  must  be 

in  writing?     Must  this  amount  be  "in  value"  or  "in  price"? 
Who   must   sign   the  memorandum   required  by  the   Statute   of 

•Frauds?     Why  should  both  parties  sign? 
When  should  the  memorandum  required  by  the  Statute  of  Frauds 

be  made  and  what  should  be  its  form? 
What  exceptions  are  there  to  the  rule  in  the  Statute  of  Frauds 

as  to  the  written  memorandum? 

7.  What  is  the  rule  in  your  state  as  to  contracts  for  work  and 

services  ? 

8.  What  are  "goods,  wares  and  merchandise"  within  the  meaning  of 

the  Statute  of  Frauds? 


6. 


i 


II 


CHAPTER  XVIII 

WARRANTIES^ 

I  io8.    Introductory 

The  definition  of  a  warranty  in  the  Standard  Dictionary 

An  assurance  or  undertaking  by  the  seller  of  property, 
express  or  implied,  that  the  property  is  or  shall  be  as  it  is 
represented  or  promised  to  be,  as  to  quantity,  quality,  or  title. 

If  a  farmer  goes  into  an  agricultural  warehouse  and  asks 
to  look  at  mowing  machines,  and  after  having  inspected  the 
stock  and  obtained  prices  to  his  satisfaction,  says  he  will  take 
the  one  which  he  has  selected,  he  has  assumed  the  responsi- 
bility for  its  fitness  himself  and  has  no  recourse  as  to  the 
seller  for  damages  afterward  if  it  should  prove  unsatisfactory. 
The  court  would  apply  the  maxim  caveat  emptor,  the  ancient 
and  harsh  doctrine  of  the  common  law,  signifying,  "let  the 
buyer  beware."  The  common  law  took  a  sporting  view  of 
the  dealings  between  buyer  and  seller,  and  did  not  wish  to 
discourage  skill  in  barter  by  stressing  too  much  any  ethical 
considerations. 

At  the  present  day,  however,  both  law  and  trade  morality 
have  advanced  a  long  way  beyond  this  primitive  conception 
of  the  rights  of  buyer  and  seller.  Nearly  all  trade  transactions 
are  now  based  on  certain  contract  conditions,  expressed  or 
implied,  by  which  the  risk  to  the  buyer  is  largely  eliminated. 
A  change  of  property  for  a  consideration  rarely  takes  place 


>For  fonn  of  warnmty  contract,  tee  Chapter  CI,  Form  25. 

144 


WARRANTIES 


145 


without  some  conditions  or  warranties  as  to  quality,  utility, 
or  other  characteristics  of  the  commodity  sold. 

Note: 

I.  The  buyer  should  take  care  that  he  has  a  warranty 
that  what  he  purchases  will  serve  his  purpose. 

§  109.    Conditions  Precedent 

An  agreement  that  an  article  must  be  up  to  a  certain 
standard  is  known  as  a  condition  precedent. 

A  condition  precedent  is  a  specification  of  the  kind  of 
article  that  is  wanted  with  which  the  article  must  comply 
before  there  can  be  any  sale  at  all. 

If  it  is  agreed  that  the  article  to  be  sold  is  to  conform 
to  a  certain  standard,  there  is  no  sale  tmtil  an  article  is 
produced  according  to  that  standard.  For  instance,  if  the 
seller  agreed  to  furnish  a  steam  pump  that  would  raise  lOO 
gallons  a  minute  to  a  height  of  50  feet,  he  must  furnish  a 
pump  that  will  do  exactly  this  before  the  buyer  is  obliged 
to  take  it. 

Another  example  of  a  condition  precedent  occurs  in  a 
provision  that  work  to  be  done  or  goods  to  be  delivered  must 
be  satisfactory  to  or  approved  by  some  third  party,  as  when 
a  church  organ  is  installed,  to  be  approved  by  some  musical 
expert. 

All  executory  contracts  are,  in  fact,  contracts  with  per- 
formance as  a  condition  precedent  to  payment. 

Note: 

I.  Where  there  has  been  an  agreement  that  the  article 
to  be  sold  shall  be  of  a  certain  kind  and  quality, 
the  buyer  is  not  obliged  to  take  any  article  that 
is  not  of  that  kind  and  quality. 


146 


SALES 


§110.    Conditioiis  Subsequent 

A  condition  subsequent  is  a  condition  that  may  defeat 
the  sale  after  its  completion,  and  give  the  buyer  the  right  to 
return  it  and  recover  the  price  if  he  had  paid  for  it. 

The  technical  distinction  between  a  condition  subsequent 
and  a  warranty  has  been  wiped  out  by  the  Uniform  Sales  Act. 
Formerly,  a  breach  of  warranty  entitled  the  injured  party  only 
to  damages,  while  a  breach  of  condition  gave  him  his  choice 
of  suing  for  damages  or  returning  the  goods.  By  the  Uniform 
Sales  Act  the  buyer  who  suffers  a  breach  of  warranty  now 
has  the  same  choice  of  remedies  that  the  buyer  who  suffers 
a  breach  of  condition  has  always  had.  Wherever  this  act  is 
in  force  the  buyer,  whether  under  warranty  or  under  condi- 
tion, has  his  choice  of  suing  or  of  returning  the  goods. 

§  III.    Express  Warranties 

An  express  warranty  is  a  statement  made  by  the  seller 
about  the  quality,  durability,  working  ability,  etc.,  of  the 
article  sold  in  order  to  induce  the  buyer  to  purchase.  The 
purchaser  must  have  bought  the  goods  in  reliance  on  that 
statement.  If  he  relies  on  his  own  judgment  and  selects  the 
goods  himself,  there  is  no  warranty  even  though  the  seller 
makes  a  statement  of  fact 

Any  statement  of  fact  or  any  promise  by  the  seller  in 
regard  to  the  quantity,  quality,  or  title  of  a  commodity  is  an 
express  warranty,  if  the  natural  effect  of  such  a  statement 
is  to  induce  the  buyer  to  purchase  the  goods,  and  if  the  buyer 
does  purchase  the  goods  relying  on  such  statements. 

If  there  is  a  warranty,  and  upon  using  the  goods  it  turns 
out  to  be  untrue,  under  the  Uniform  Sales  Act  the  buyer  may 
return  the  goods,  or  he  may  sue  the  seller  and  recover 
damages  in  the  amount  of  the  difference  between  what  the 
article  is  actually  worth  to  him  and  what  it  would  have  been 
worth  had  the  warranty  been  true.    (See  §  114.) 


WARRANTIES 


147 


« 

If  a  merchant  tells  you  that  his  goods  are  the  best  on  the 
market,  this  is  not  an  express  warranty,  as  it  amounts  merely 
to  his  opinion  of  them,  and  is  what  is  called  "merchant's 
puffing."  If,  on  the  other  hand,  he  makes  an  express  state- 
ment that  these  goods  will  wear  better  than  certain  similar 
goods  manufactured  by  another  firm,  you  may  rely  on  his 
statement  as  an  express  warranty. 

It  is  always  well  to  get  a  warranty  in  the  most  definite 
terms  possible,  for  if  a  merchant  is  really  willing  to  warrant 
his  goods  he  will  not  be  afraid  to  say  so  in  plain  language 
if  the  buyer  insists  upon  it.  If  the  merchant  is  not  willing 
to  make  a  definite  warranty,  it  is  better  for  the  buyer  to  know 
it  beforehand  and  to  realize  that  he  is  relying  on  his  own 
judgment  and  can  claim  nothing  from  the  merchant  in  case 
the  goods  prove  unsatisfactory.  A  written  warranty  prevents 
forgetfulness  on  the  part  of  the  seller. 

Notes: 

1.  In  all  purchases,  make  sure  that  all  terms  are  plainly 

written  out,  in  positive  language. 

2.  In  all  prospectuses,  analyze  the  statements  and  note 

the  positive  assertions  as  to  material  matters. 

§  112.    Implied  Warranties 

111  every  sale  today  there  are  certain  implied  warranties 
which  the  law  compels  the  seller  to  make  good.  In  regard 
to  his  right  to  sell  the  property,  he  warrants  by  the  mere  act 
of  selling  goods: 

1.  That  he  has  a  right  to  sell  the  goods,  or,  if  it  be  a 

contract  of  sale,  that  he  will  have  the  right  to 
sell  them  when  the  time  for  the  sale  arrives. 

2.  That  the  buyer  shall  not  be  disturbed  by  any  claims 

made  by  others  against  the  goods. 


148 


SALES 


3.    That  the  goods  are  free  from  any  claim,  charge,  or 
incumbrance  at  the  time  of  the  sale. 


These  warranties  do  not  apply  to  sheriff's  sales  and  auction 
sales.  There  the  buyer  takes  the  risk  that  the  article  may  be 
claimed  by  someone  else. 

If  the  seller  sells  stolen  goods,  the  buyer  will  be  forced 
to  return  the  goods  to  their  rightful  owner,  but  he  may,  if 
he  can,  recover  from  the  seller  the  damages  which  he  has 
suffered  because  of  the  sale. 

Special  Situations.  There  is  what  seems  to  the  public  a 
curious  situation  here.  If  the  seller  had  actually  stolen  the 
goods,  the  buyer  would  have  to  give  them  up  to  the  rightful 
owner  even  though  he  knew  nothing  of  the  theft;  whereas,  if 
the  seller  had  obtained  the  goods  with  the  consent  of  the 
rightful  owner  through  fraud,  the  buyer,  ignorant  of  the 
fraud,  might  be  allowed  to  keep  them.  There  is  a  case  where 
a  man  bought  some  jewelry  on  credit  by  representing  himself 
to  be  another  man,  and  afterwards  sold  the  jewelry  to  a 
third  person  who  had  no  knowledge  of  the  fraud,  and  the 
third  person  was  allowed  to  keep  the  jewelry.  This  is  because 
the  jeweler  gave  up  the  property  of  his  own  accord  to  the 
fraudulent  seller  and  therefore  enabled  the  seller  to  lead  the 
third  person  into  buying  the  jewelry  and  paying  out  his  money 
for  it. 

Other  Implied  Warranties,  There  are  two  other  war- 
ranties which  go  with  a  sale  of  goods  even  though  nothing 
is  said  about  them. 

I.  If  the  buyer  makes  known  to  the  seller  the  purpose 
for  which  he  intends  to  use  the  goods,  or  if  this  purpose  was 
known  to  the  seller,  there  is  a  warranty  that  the  goods  are 
fit  for  the  purpose. 

Whenever  a  person  goes  into  a  market  or  a  grocery  store 
to  buy  food,  the  butcher  or  the  grocer  is  supposed  to  know 


WARRANTIES 


149 


that  he  is  buying  it  for  the  purpose  of  eating  it  and  there 
is,  therefore,  a  warranty  that  the  food  is  fit  to  eat. 

If  the  buyer  orders  goods  by  their  trade-names  (Quaker 
Oats,  Ivory  Soap,  etc.),  the  seller  is  relieved  from  any  war- 
ranty that  they  are  fit  for  his  purpose. 

2.  If  goods  are  bought  from  a  person  who  regularly  deals 
in  that  kind  of  goods,  there  is  a  warranty  that  they  are  of 
merchantable,  that  is,  salable  quality. 

When  a  person  orders  goods  from  a  description  in  a  sales 
catalogue,  or  from  a  sample,  there  is  also  an  implied  warranty 
that  they  are  similar  to  the  description  or  sample. 

The  seller  is  liable  in  damages  to  the  buyer  if  any  of 
these  warranties  are  broken.  He  is  liable  only  to  the  im- 
mediate buyer,  however,  and  not  to  other  persons  to  whom 
the  buyer  sells  the  goods,  although  he  may,  if  he  manufactured 
the  article  himself,  be  liable  for  any  injuries  suffered  as  the 
result  of  a  defect  in  it. 

Note: 

I.  The  fact  that  the  law  implies  certain  warranties 
should  not  prevent  the  buyer  from  obtaining  posi- 
tive written  warranties  on  all  important  pur- 
chases. 


Review  Questions 


I. 
2. 


What  is  a  warranty? 

Is  a  warranty  of  quality  of  a  chattel  implied  by  the  mere  fact 

of  sale?     What  is  the  rule? 
Distinguish  a  condition  precedent  from  warranty. 
Distinguish  a  condition  subsequent  from  warranty. 

5.  May  an  injured  party  treat  breach  of  a  condition  subsequent 

as  a  breach  of  warranty? 

6.  What  two  elements  constitute  an  express  warranty?    Distinguish 

between  a  "statement  of  fact"  and  an  "expression  of  opinion." 


3 

4 


I 


ISO 


SALES 


7-  What  are  the  implied  warranties  of  ownership  where  a  sale  is 
made?    What  are  the  implied  warranties  of  quality? 

&  To  what  classes  of  sales  do  the  implied  warranties  of  ownership 
not  apply? 

9.  Does  a  warranty  follow  the  goods  through  successive  sales? 
What  exception  is  there  to  this  rule? 

To  whom  only  is  the  seller  liable  for  a  breach  of  an  implied 
warranty  ? 


10. 


W 


CHAPTER  XIX 

REMEDIES 

§  113.     Rights  of  Unpaid  Seller  Under  the  Contract 

The  various  sorts  of  warranties  protect  the  buyer  in  all 
business  transactions.  It  is  necessary  also  that  the  rights  of 
the  seller  be  protected.  Most  breaches  of  contract  in  cases 
of  sale  arise  from  the  failure  of  the  buyer  to  make  the  required 
payments.  In  such  cases  the  goods  may  be  in  the  possession 
of  one  of  the  following  three  parties: 

1.  The  unpaid  seller  may  still  have  the  goods  in  his 

own  possession;  or 

2.  They  may  be  in  the  possession  of  a  railroad,  a  steam- 

ship, or  an  express  company  for  the  purpose  of 
shipment  to  the  buyer;  or 

3.  They  may  be  in  the  possession  of  the  buyer  himself. 

A  seller  is  still  unpaid  if  he  has  been  given  a  bad  check 
or  note  in  return  for  the  goods. 

I.  If  the  seller  has  the  goods  in  his  own  possession,  and 
if  they  were  not  sold  on  credit,  any  of  the  following  courses 
is  possible: 

(a)  The  seller  may  in  most  cases  refuse  to  give  them 

up  until  they  are  paid  for.  If,  however,  the  sale 
is  on  credit,  and  the  seller  has  no  reason  to  believe 
that  the  buyer  is  insolvent,  the  seller's  duty  would 
be  to  deliver  the  goods. 

(b)  If  the  goods  are  of  a  perishable  nature,  or  if  the 

buyer  has  failed  to  pay  for  an  unreasonable  length 
of  time,  or  if  the  seller  has  reserved  that  right 
in  his  agreement  of  sale,  he  may  resell  them  to 

151 


152  SALES 

another  person,  keep  the  price,  and  sue  the  buyer 
for  damages  for  any  loss  he  may  have  sustained 
by  the  transaction. 

(c)  The  seller  may,  if  the  time  for  payment  has  arrived, 

notify  the  buyer  that  he  holds  the  goods  for  him 
and  sue  him  for  the  price. 

(d)  The  seller  may,  if  the  time  for  payment  has  arrived 

and  no  payment  has  been  made,  sue  the  buyer 
for  damages  for  breach  of  the  contract. 

The  measure  of  damages  will  be  the  difference  between 
what  the  seller  can  sell  the  goods  for  to  someone  else,  and  the 
contract  price.  If  the  seller  was  manufacturing  the  article, 
he  may  claim  damages  for  whatever  loss  he  has  sustained  in 
time  or  otherwise  up  to  the  time  the  buyer  notified  him  that 
he  refused  to  take  the  article,  not  for  any  loss  through  con- 
tinuing the  work  after  that.  Of  course,  if  he  can  sell  the 
article  when  finished  to  someone  else  at  the  same  price,  there 
is  no  loss. 

If  the  goods  were  sold  on  credit,  and  the  term  of  credit 
has  expired  while  they  are  still  in  the  seller's  possession,  or 
if  the  buyer  has  become  insolvent,  then  the  seller  may  exercise 
either  of  the  last  two  rights. 

2.  If  the  goods  have  been  delivered  to  a  railroad  com- 
pany, etc.,  for  transportation,  the  seller's  rights  may  be  sum- 
med up  as  follows: 

(a)  If  in  giving  the  goods  to  the  railroad  company  for 
transportation  the  seller  reser\'es  the  right  of 
ownership  to  himself,  he  may  refuse  to  allow 
the  goods  to  be  delivered  to  the  buyer  until  the 
latter  pays  the  purchase  price.  The  seller  may 
keep  control  by  shipping  to  himself  at  the  destina- 
tion. Then,  until  he  assigns  the  bill  of  lading  to 
the  buyer,  the  control  is  in  his  hands. 


REMEDIES 


153 


(b)  If  the  buyer  becomes  insolvent  and  the  goods  are 
in  transit,  the  seller  may  stop  their  delivery  and 
enforce  any  of  the  remedies  mentioned  under 
(i),  provided  the  railroad,  express  company,  or 
other  carrier,  has  not  informed  the  buyer  that 
they  are  holding  the  goods  subject  to  his  orders. 
The  seller  cannot,  of  course,  stop  the  delivery  of 
the  goods  after  they  are  in  the  possession  of  the 
buyer  or  his  agent,  even  though  it  was  before 
they  reached  their  destination.  If  there  has  been 
a  bill  of  lading  issued  for  the  goods,  the  railroad 
company  may  refuse  to  give  them  up  until  the 
bill  of  lading  is  returned. 

Until  the  goods  have  come  into  the  possession  of  the  buyer, 
the  seller's  right  of  stoppage  in  transitu  is  superior  to  any 
other  claim.  Other  creditors  have  tried  to  attach  goods  under 
such  circumstances,  but  the  courts  have  always  maintained 
the  seller's  priority  unless  the  buyer  himself  had  received  them, 
or  they  had  rightfully  passed  under  his  control.  The  buyer 
could  not  defeat  the  right  of  stoppage  by  selling  the  goods  in 
transit  to  a  third  party.  The  third  party  would  have  the  same 
rights  as  the  first  buyer  and  no  more. 

A  seller  who  stops  goods  in  transit  on  a  mere  rumor  of 
the  buyer's  insolvency  will  be  liable  for  damages  if  the  buyer 

is  really  solvent. 

3.  If  the  goods  have  come  into  the  possession  of  the 
buyer,  they  are  his  property  and  the  seller  has  lost  all  claim 
to  them.  The  seller  can  only  bring  suit  for  the  price  if  it  is 
not  paid  when  due. 

Note: 

I.  A  provision  permitting  the  seller  to  resell  the  goods 
in  the  event  of  non-payment  before  delivery 
should  be  inserted  in  the  contract  in  those  cases 


t 


I 


154 


SALES 


where  the  buyer's  credit  is  not  dependable.  This 
allows  him  to  protect  himself  by  selling  them 
without  running  the  risk  of  being  held  guilty  of 
breaking  the  contract. 

§  114.    Rights  of  Buyer 

When  a  salesman  sells  goods  to  a  customer,  the  employer 
has  the  right  to  refuse  to  accept  the  order  of  the  customer, 
but,  if  the  customer  can  prove  actual  damage,  the  employer 
will  be  liable  to  the  extent  thereof.  By  allowing  the  salesman 
to  hold  himself  out  as  an  authorized  agent  with  the  power  of 
sale,  the  employer  makes  himself  liable  for  his  acts. 

Where  the  seller  refuses  to  give  up  the  goods  to  the  buyer 
except  where  the  buyer  does  not  pay  at  the  proper  time 
(see§  113): 

I.  The  buyer  may  have  the  right  to  the  ownership  of 
the  goods.  In  this  case  he  may  sue  the  seller  for 
damages  for  withholding  the  goods,  or  he  may 
bring  what  is  known  as  an  "action  in  replevin" 
to  get  possession  of  the  particular  goods. 
.  2.  Or  the  buyer  may  have  no  right  of  ownership  over 
the  goods,  but  only  a  right  under  the  contract  to 
have  the  goods  delivered  to  him.    In  this  case: 

(a)  The  buyer  may  sue  the  seller  for  damages 

for  breach  of  the  contract ;  or 

(b)  If  the  article  was  of  a  special  kind  or  made 

to  order  so  that  he  could  not  get  it  any- 
Avhere  else,  the  buyer  may  go  into  a  court  . 
of  equity  and  sue  to  compel  the  seller  to 
perform  his  contract. 

The  measure  of  damages  in  any  of  these  cases  is  the 
difference  between  what  the  buyer  could  go  out  into  the 
market  and  buy  the  goods  for,  and  the  contract  price.    If  he 


REMEDIES 


155 


could  get  them  for  the  same  price  or  less  in  the  market,  he 
would,  of  course,  have  suffered  no  damages. 

Where  the  seller  delivers  or  tenders  the  goods  but  they 
fail  to  come  up  to  a  warranty  which  he  has  made  for  them, 
the  Uniform  Sales  Act  allows  the  buyer  the  foUowmg 
remedies: 

I.  He  may  accept  or  keep  the  goods  and  set  up  against 
the  seller  the  breach  of  warranty  by  way  of  re- 
coupment in  diminution  or  extinction  of  the  price. 

2  He  may  accept  or  keep  the  goods  and  maintain  an 

action  against  the  seller  for  damages  for  the  breach 

of  warranty. 

3  He  may  refuse  to  accept  the  goods,  if  the  property 

therein  has  not  passed,  and  maintain  an  action 
against  the  seller  for  damages  for  the  breach  of 

warranty. 

4  He  may  rescind  the  contract  to  sell,  or  the  sale,  and 

refuse  to  receive  the  goods,  or  if  the  goods  have 
already  been  received,  return  them  or  offer  to 
return  them  to  the  seller  and  recover  the  price 
or  any  part  thereof  which  has  been  paid. 

When  the  buyer  has  claimed  and  has  been  granted  a  remedy 
*  in  any  one  of  these  ways,  no  other  remedy  is  thereafter 

^^^  The  buyer  must  send  back  the  goods  in  as  good  condition 
as  that  in  which  they  were  received,  unless  the  damage  has 
resulted  because  of  the  fact  that  they  were  not  as  warranted. 
He  cannot  return  them  if  he  has  once  accepted  them  knowing 
that  they  were  not  as  warranted,  or  if  he  has  failed  to  notify 
the  seller  within  a  reasonable  time  that  he  refuses  to  take 

If  the  goods  are  really  not  as  warranted,  and  notice  has 
been  given  to  the  seller  that  the  buyer  refuses  to  take  the 


iS^ 


SALES 


goods,  the  buyer  cannot  be  held  liable  for  the  price  If  he 
has  paid  any  part  of  the  sum  due,  he  is  entitled  to  have  that 
money  back  before  returning  the  goods,  and,  if  necessary,  may 
sell  the  goods  to  another  party  in  order  to  get  back  what  he 
Has  paid  on  them,  handing  over  the  surplus  to  the  seller. 

The  measure  of  damages  which  the  buyer  may  recover 
for  a  breach  of  the  contract  of  warranty  is  the  difference 
between  what  the  goods  were  actually  worth  at  the  time  they 
were  delivered,  and  what  they  would  have  been  worth  if  thev 
had  been  as  warranted. 


Note: 


In  any  case  where  the  buyer  intends  to  assert  his 

rights,  he  should  act  promptly.     Delay  may  be 

fatal.    A  buyer  should  never  accept  goods  without 

examining  them.     Where  there  was  a  warranty 

of  durability,  he  should  notify  the  seller  of  his 

dissatisfaction,  or  refusal  to  accept  the  goods, 

just  as  soon  as  he  discovers  that  they  are  not  up 

to  the  warranty.    It  is  a  prudent  thing  in  such  a 

case  to  provide  in  the  agreement  of  sale  that  the 

buyer  may  keep  back  part  of  the  purchase  price 

till  he  has  tested  the  article  warranted. 


§  115.    Rescission  of  Sale 

M  rescission  results  from  failure  to  perform  a  contract  of 
s^e.  Both  parties  may  now  agree  or  one  party  may  call  it 
off  and  the  other  may  acquiesce.  If  the  other  does  not  ac- 
quiesce,  the  rights  of  the  parties  must  be  determined  by  suit 
as  set  forth  in  the  earlier  part  of  this  chapter. 

In  case  of  rescission:  (i)  The  buyer  and  the  seUer  may 
agree  to  cancel  the  contract.  (2)  When  the  seller  has  the 
goods  in  his  possession  or  has  stopped  them  on  the  way  to 
the  buyer,  he  may  caU  off  the  sale  if  he  has  reserved  that 


REMEDIES 


157 


right  in  the  contract  and  the  buyer  does  not  carry  out  his 
agreement:  or  if  the  buyer  fails  to  pay  for  the  goods  within 
a  reasonable  length  of  time.  (3)  The  buyer  may  call  off  the 
contract  if  the  goods  are  not  as  warranted. 

When  the  sale  is  called  off  by  agreement,  the  buyer  must 
return  the  goods  to  the  seller,  and  the  seller  must  return  the 
price  to  the  buyer.  But  the  buyer  may  keep  the  goods  until 
the  seller  pays  him  back  what  he  has  paid,  and  the  seller  may 
keep  the  price  until  the  buyer  returns  the  goods.  Either  party 
may  take  the  initiative.  The  one  who  most  desires  to  cancel 
the  sale  will  probably  move  first. 

When  goods  are  not  up  to  the  warranty  the  buyer  must 
return  the  goods  in  the  same  condition  in  which  they  were 
when  he  received  them.  He  may  either  actually  return  them 
or  notify  the  seller  that  he  refuses  to  accept  them  and  will 
hold  them  subject  to  his  order. 


Note: 
I. 


Either  party  who  wants  to  caU  off  the  sale  should 
do  so  just  as  soon  as  he  finds  out  that  he  has 
good  reason  to  cancel  it.  The  court  will  not  look 
with  favor  on  any  delay,  as  it  is  not  fair  to  the 
other  party.  The  buyer  may  sell  the  goods  if 
necessary  and  get  out  of  the  money  realized  what 
he  has  paid  on  them.  If  he  has  paid  the  entire 
price  and  the  goods  do  not  realize  that  amount 
when  sold,  he  may  sue  the  seller  for  what  he  has 
lost  on  the  transaction. 


1^8 


SALES 


Review  Questions 


I. 


2. 
3. 


^1 


10. 


What  recourse  has  a  seller  who  has  the  goods  still  in  his  posses- 
sion: (a)  If  a  sale  was  to  be  for  cash;  (b)  if  it  was  on 
credit;  (c)  if  the  goods  are  perishable? 

How  can  goods  be  shipped  so  that  title  remains  in  the  seller? 

What  is  meant  by  the  right  of  "stoppage  in  transitu"?    If  this 
right  is  exercised  on  a  false  rumor  of  the  buyer's  insolvency 
what  is  the  effect? 

4.  A  seller  of  goods  under  contract  that   no  payment   is  to  be 

made  till  all  goods  are  shipped,  ships  some,  and  then  finds 
that  the  buyer  has'  failed.    What  can  the  seller  do  ? 

5.  If  a  seller  wrongfully  refuses  to  deliver  goods,  what  remedy 

has  the  buyer?     When  can  the  buyer  enforce  specific  per- 
formance of  his  contract? 

6.  A  salesman  sells  a  bill  of  goods.     The  employer  refuses  to 

accept  the  order.     Has  the  buyer  any  recourse? 

7.  When  goods  are  ordered  and  on  arrival  they  fail  to  come  up 

to  a  warranty  that  has  been  made,  what  two  alternatives  has 
the  buyer  ? 

8.  How  can  a  sale  be  called  off? 

9.  Jackson  bought  70  cords  of  wood  of  Smith.     The  wood  was 

piled  and  measured  on  Smith's  property,  and  Jackson  was  to 
come  to  get  it.  Nothing  more  was  said.  Before  Jackson 
paid  for  or  took  the  wood  away,  he  went  into  bankruptcy. 
His  receiver  claimed  the  wood,  which  the  seller  refused  to 
give  up.  Who  was  right? 
Farley  sold  a  carload  of  furniture  to  a  retail  firm.  While  the 
goods  were  en  route  over  the  railroad,  he  learned  that  the 
firm  was  insolvent,  and  accordingly  ordered  the  railroad  to 
return  the  lot  to  him,  offering  freight  and  other  charges.  The 
railroad,  however,  claimed  that  it  had  attached  the  goods  to 
satisfy  a  claim  of  its  own  against  the  insolvent  firm.  Could 
such  attachment  take  precedence  of  the  seller's  lien? 


CHAPTER  XX 

SALES  AT  AUCTION 

§116.    Regulations  for  Sales  at  Auction 

A  sale  at  auction  is  held  in  accordance  with  terms  printed 
in  the  auction  bills.  The  sale  is  made  when  the  auctioneer 
lets  his  hammer  fall.  He  need  not  accept  any  bid  unless 
required  to  do  so  by  the  terms  of  the  printed  auction  adver- 
tisement. Generally  such  an  advertisement  will  specify  that 
the  property  is  to  be  sold  to  the  highest  bidder.  An  auctioneer 
may  refuse  to  recognize  bids  that  are  not  substantially  higher 
than  the  last  bid,  the  amount  depending  on  the  value  of  the 

article  offered  for  sale. 

If  the  seller  had  printed  in  the  auction  bill  a  provision 
that  he  reserved  the  right  to  take  part  in  the  bidding  himself, 
he  might  bid  at  the  sale  or  have  his  friends  do  so  for  him. 
Otherwise  if  the  seller  himself  bids,  or  has  bids  made  for 
him,  the  person  to  whom  the  goods  are  finally  knocked  down 
may  refuse  to  take  them  if  he  discovers  the  situation. 

§117.    Compliance  with  Conditions 

The  sale  may  be  made  on  some  condition.  The  buyer 
must  then  comply  with  the  condition  before  he  can  receive 
the  goods.  Sometimes  bidders  are  required  to  make  a  deposit 
before  being  allowed  to  bid ;  sometimes  they  are  required  to 
make  a  deposit  after  the  bid  is  accepted.  If  the  bidder  does 
not  comply  with  the  terms  of  the  sale  he  forfeits  this  deposit, 
unless  it  appears  that  the  seller  could  not  give  him  good  title 
to  the  property,  in  which  case  he  may  recover  his  deposit  and 
refuse  to  take  the  goods. 

159 


i6o 


I 


SALES 


A  purchaser  at  an  auction  sale  must  always  pay  cash  before 
he  is  entitled  to  the  property  unless  the  printed  terms  provide 
otherwise. 

The  seller  may  sue  the  purchaser  for  damages  if  the  pur- 
chaser fails  to  take  property  which  was  knocked  down  to  him. 
The  seller  may  also  seU  the  goods  to  someone  else  for  what 
he  can  get  for  them.  This  amount  will  be  deducted  from 
his  damages. 

§  ii8.    Duties  of  Auctioneer 

The  auctioneer  acts  as  an  agent  for  the  seller  in  selling 
the  property;  for  the  buyer  in  signing  a  memorandum  of  the 
sale.  The  seUer  will  be  bound  to  carry  out  the  sale  which 
the  auctioneer  makes,  and  the  buyer  to  take  the  goods  accord- 
tng  to  the  memorandum  of  sale.  An  auctioneer  is  not  allowed 
to  bid  for  himself  at  a  sale,  but  he  may  make  bids  for  some- 
one  else.  If  he  does  not  state  for  whom  he  is  selling  the 
property,  he  is  personally  responsible  to  the  purchaser  for 
seeing  that  the  terms  of  the  sale  are  carried  out. 

An  auctioneer  who  sells  property  that  does  not  belong  to 
the  seller  is  personally  responsible  to  the  owner  of  the  property 
even  though. he  honestly  thought  it  was  part  of  the  goods 
to  be  sold.  Because  of  all  this  responsibility,  the  law  usually 
requires  an  auctioneer  to  have  a  license.  In  New  York  a  man 
must  take  out  a  license  to  act  as  auctioneer  in  order  to  sell 
even  his  own  property. 

The  auctioneer  has  a  lien  on  the  property  for  his  com- 
mission, and  may  require  the  commission  to  be  paid  him  before 
giving  up  the  property  to  the  purchaser. 

Note: 

I.  In  planning  for  an  auction  sale,  all  the  terms  should 
be  decided  upon  and  printed  in  the  handbills  ad- 
vertising it.    If  the  owner  of  the  property  wants 


SALES  AT  AUCTION 


i6i 


10  reserve  the  right  to  bid  or  to  have  bids  made 
for  him,  it  must  be  definitely  stated. 


Review  Questions 

1.  Has  the  owner  of  goods  sold  at  auction  the  legal  right  to  bid 

on  them? 

2.  What  should  be  announced  in  the  auction  bills? 

3.  Whose  agent  is  the  auctioneer? 

4.  In  your  state  does  the  auctioneer  have  to  be  licensed?    May  a 

man  sell  his  own  goods  at  auction  without  a  license? 

5.  What  lien  has  an  auctioneer? 


I 


i 

I 


PARI'  IV 
AGENCY 


CHAPTER  XXI 

PRINCIPLES  OF  AGENCY 

§119.    Introductory 

In  the  complex  commercial  life  of  today  much  of  the 
world's  business  is  of  necessity  transacted  by  proxy.     The 
amount  of  business  that  one  man  can  do  is  limited.    Hence, 
to  conduct  the  great  activities  of  the  world,  those  with  execu- 
tive ability  empower  others  to  act  for  them.    At  the  present 
time  the  larger  proportion  of  business  men  are  not  doing 
business  for  themselves,  but  are  acting  as  agents  for  others. 
On  this  account  the  subject  of  agency  is  of  primary  im- 
portance.    Many  men  are  principals,  yet  more  are  agents; 
and  all  have  to  do  with  agents  and  should  know  what  agents' 
powers  are  and  just  how  far  they  represent  their  principals. 
The  matter  of  agency  enters  into  all  departments  of  business 
and  will  come  up  again  and  again  in  the  treatment  of  other 
subjects  in  this  work.    The  subject  of  agency  is  of  vital  im- 
portance in  insurance,  partnership,  and  corporation  law. 


§  120.    Definitions 

An  agent  is  one  who  represents,  or  is  authorized  to  repre- 
sent, another  person  in  a  business  transaction  or  transactions 
with  third  parties. 

The  person  represented  is  known  as  the  "principal." 

The  person  appointed  may  be  known  as  "agent,"  "factor," 
"broker,"  "attorney,"  "proxy,"  "delegate,"  or  "representative." 

The  relation  between  the  principal  and  the  agent  is  termed 
"agency." 

i6s 


1 66 


AGENCY 


§iai.    The  Principal 

Anyone  capable  of  transacting  his  own  business  may  ap- 
point an  agent  to  act  for  him  in  the  same  matters.  A  standard 
text-book  expresses  it  thus: 

It  may  be  stated  as  the  general  rule,  by  the  common  law 
every  person  who  is  competent  to  act  in  his  own  right,  and 
in  his  own  behalf,  may  appoint  an  agent* 

In  the  California  Code  it  is  expressed  as  follows: 

Any  person  having  capacity  to  contract,  may  appoint  an 
agent. 

The  legal  doctrine  of  agency  is  based  on  the  principle 
that  whatever  a  person  may  do  for  himself,  he  may  do  by 
another  person.  The  person  who  appoints  an  agent  must  be, 
therefore,  capable  of  transacting  his  own  business;  that  is, 
when  he  appoints  an  agent,  he  njust  be  sane,  sober,  and  capable 
of  acting  for  himself,  and  also,  he  must  be  of  full  age— hence 
a  minor  cannot  appoint  an  agent. 

The  following  are  legally  qualified  to  be  principals: 

1.  Corporations  may  appoint  agents  to  accomplish  their 

corporate  purposes— in  fact,  a  corporation  can  act 
only  by  its  agents. 

2.  Partnerships  may  appoint  agents,  and  apart  from 

this  each  partner  is  held  to  be  an  agent  for  the  firm. 

3.  Married  women  may  appoint  agents. 

4.  Unincorporated   clubs   and   societies   may    appoint 

agents. 

Notes: 

I.    The  principal  must  be  competent  to  act,  and  in  his 
sane  mind. 


'  Mechem  on  Agency,  129;  Cyc.  31,  p.  1175, 


PRINCIPLES  OF  AGENCY 


167 


2.  Infants  are  not  competent  to  act  for  themselves,  and 

hence  cannot  appoint  agents. 

3.  Partnerships,  clubs,  and  societies  may  be  principals. 

4.  Corporations  can  operate  only  through  agents. 

§  laa.    The  Agent 

Any  person  who  is  qualified  to  perform  a  particular  act 
may  do  it  as  the  agent  of  another. 

Anyone  who  has  capacity  to  act  for  himself  is  ordinarily 
capable  of  acting  as  agent  for  another  ....  it  is  generally 
thought  he  may  be  capable  of  acting  as  agent  for  another, 
although  he  is  not  capable  of  acting  for  himself.  ^ 

The  point  to  be  noted  in  this  statement  is  that  a  person 
may  be  legally  incompetent  to  act  for  himself,  but  yet  may 
lawfully  act  as  agent  for  someone  else.  For  instance,  a  minor, 
i.e.,  anyone  under  age,  cannot  contract  for  himself,  but  he 
may  act  as  agent  for  an  older  person  and  what  he  does  will 
bind  the  older  person.* 

A  child  may  be  the  agent  of  his  parent.  But  it  must  be 
because  the  child  has  been  appointed  an  agent,  not  simply 
because  he  is  the  child  of,  or  is  living  in  the  house  with,  the 
parents.  In  such  cases,  to  be  an  agent,  the  child  must  have 
been  directly  authorized  by  the  parent  to  act  along  certain 
lines,  or  else  it  must  be  shown  that  the  child  had  been  in  the 
habit  of  so  acting  with  the  approval  of  his  father  or  mother. 

In  a  New  Hampshire  case  the  judge  said: 

A  son  has  no  authority,  as  such,  to  lend  his  father's 
property,  and  there  is  no  presumption  that  such  authority  has 
been  given  the  son.* 


•31  Cyc.  1212;  Lyon  &  Co.  v.  Kent,  45  Ala.  56. 
«  Sheldon  v.  Newton,  3  Ohio  State  494. 
« Johnson  v.  Stone,  40  N.  H.   197, 


y 


1 


Ii 


M 


Notes: 


I. 


AGENCY 

A  minor  who  cannot  contract  for  himself  may  con-  y/ 
tract  as  an  agent  for  someone  else. 

Anyone  can  be  an  agent  to  do  anything  he  is  suffi- 
ciently intelligent  to  do. 

A  parent  is  not  bound  by  the  contract  of  a  minor  y 
child  unless  he  has  expressly  or  impliedly  made  V 
the  child  his  agent. 


§  123.    Genera!  Agents 

A  general  agent  is  one  authorized  to  assume  entire  charge 
of  his  principal's  business,  or  all  of  one  phase  of  the  business, 
or  all  of  his  principal's  business  at  some  particular  place. 

Unless  notified  to  the  contrary,  people  dealing  with  an 
agent  have  the  right  to  presume  that  his  agency  is  a  general 
one,  and  that  he  is  authorized  to  do  anything  usually  done  in 
such  a  business.  A  general  agent  has  unrestricted  powers  to 
deal  along  the  line  he  is  engaged  in. 

The  manager  of  a  business  is  a  general  agent  with  power 
to  use  his  individual  judgment  and  to  act  largely  upon  his 
own  initiative.  His  employer  controls  and  limits  his  general 
policy,  but  he  does  many  specific  acts  at  his  own  discretion, 
and  delegates  authority  in  minor  details  to  subagents  who 
answer  to  him  for  what  they  do. 

For  instance,  the  manager  of  a  grocery  store  is  a  general 
agent  for  that  purpose  and  has  authority  to  purchase  all  kinds 
of  goods  that  are  sold  in  the  store,  and  to  contract  for  neces- 
sary repairs  and  improvements  in  the  store.  He  has  no 
authority  to  buy  dry-goods,  hardware,  or  other  things  outside 
his  line  of  business.  He  has  no  authority  to  sell  the  whole 
store,  or  to  buy  real  estate,  or  to  build  a  new  store.  If  such 
an  agent  wanted  to  contract  for  an  addition  to  the  existing 
store,  the  contractor  would  do  well  to  find  out  whether  or 


PRINCIPLES  OF  AGENCY 


169 


not  the  agent  had  authority  to  do  this,  because  this  would  seem 
not  to  be  included  in  his  general  authority. 

An  agent  may  possess  direct  authority  to  bind  his  prin- 
cipal in  a  particular  transaction ;  that  is  to  say,  the  principal 
may  expressly  empower  the  agent  to  bind  him;  and  this 
direct  authority  will  carry  with  it,  by  implication  of  law,  such 
powers  as  are  suitable  and  reasonably  necessary  to  accomplish 
the  intended  purpose.'^ 

A  superintendent  of  a  factory  is  a  general  agent  for  the 
purpose  of  running  the  factory,  and  is  presumed  to  have 
power  and  authority  to  do  anything  necessary  to  keep  it  in 
operation,  and  in  case  of  emergency  to  preserve  the  business 
and  the  building  and  to  protect  the  employees. 

Notes: 

1.  A  general  agent  has  wide  powers  in  his  particular 

line  of  business. 

2.  He  has  no  authority  to  bind  his  principal  outside 

of  his  general  line  of  business. 

3.  It  is  expedient  to  know,  when  you  are  dealing  with 

an  agent,  whether  he  is  a  general  agent  or  a 
special  agent. 

4.  A   third   person,   having   ascertained   the    general 

character  and  the  scope  of  an  agency,  may  rely 
on  the  agent's  having  such  powers  as  naturally 
and  properly  belong  to  his  position. 

5.  In  doubtful  cases,  it  is  safest  for  those  dealing  with 

a  general  agent  to  ascertain  the  extent  of  his 
authority. 

§  124.    Special  Agents 

A  special  agent  is  one  authorized  to  act  in  a  specific  trans- 
action or  in  a  limited  line  of  business.     The  authority  of  a 


» Hackett  ▼.  Frank,  105  Mo.  App.  384. 


f 


17© 


AGENCY 


special  agent  is  not  so  broad  as  the  authority  of  a  general 

A  special  agent  is  authorized  to  do  some  special  thing. 
He  may  make,  for  instance,  but  the  one  contract  or  the  one 
sale  for  which  he  has  been  appointed.  Should  he  do  some 
other  special  thing,  which  he  honestly  considers  more  to  the 
mterest  of  his  principal,  he  would  depart  from  his  instruc- 
tions and  he  alone  would  be  liable;  the  party  represented 
would  not  be  bound.  For  example,  an  agent  authorized  to 
sell  a  particular  painting  would  have  authority  to  sell  that 
painting  and  to  bind  his  principal  in  what  he  did  in  connection 
with  the  one  transaction,  but  he  would  have  no  authority 
to  do  anything  else. 

Similarly,  a  special  agent  might  be  authorized  to  buy 
wheat  for  his  principal ;  in  that  case  he  would  have  no  right 
to  buy  lumber,  coal,  or  another  grain,  but  he  could  bind  his 
principal  in  any  transaction  for  the  purchase  of  wheat  If 
the  agent  has  an  established  office  or  place  of  business  where 
he  has  been  doing  business  for  some  time  with  a  sign  or  signs 
indicating  his  agency  and  line  of  business,  a  third  person 
would  be  safe  in  doing  business  with  him  in  the  particular 
line. 

In  dealing  with  a  special  agent  engaged  for  a  particular 
transaction,  a  third  party  should  ask  to  see  the  agent's  au- 
thorization, which  is  usually  in  writing. 

In  a  New  York  case,  a  father  authorized  his  son,  to  accept 
a  draft  for  $2,000,  drawn  upon  the  father  at  not  less  than 
thirty  days.  The  son  accepted  a  draft  for  $482,  payable 
ninety  days  after  date,  in  the  name  of  his  father.  The  court 
held  that  he  was  a  "special  agent,"  and  had  no  right  to  ^o 
outside  of  his  authority.^ 

A  written  request  to  a  real  estate  broker  as  special  agent 
to  find  a  purchaser  for  real  estate,  does  not  confer  upon  him 

•^txoB  ▼.  Palmer,  8  N.  Y.  3^ 


PRINCIPLES  OF  AGENCY 


171 


any  authority  to  sign  a  binding  contract  of  sale  for  his 
principal.  To  do  this,  he  must  also  have  authority  from  his 
principal  to  sell. 

Notes: 

1.  A  special  agent  has  limited  authority. 

2.  This  authority  may  be  indicated  by: 

(a)  Written  authorization. 

(b)  An  established  office  with  signs  and  adver- 

tisements. 

(c)  A  continued  course  of  dealing. 

3.  No  one  can  become  the  agent  of  another  except  by 

the  will,  expressed  or  implied,  of  the  principal. 

4.  An  agent  cannot  create  in  himself  a  particular  au- 

thority merely  by  the  performance  of  the  act. 

§  125.    Del  Credere  Agents 

A  del  credere  agent  is  one  who  guarantees  to  his  principal 
that  any  goods  sold  by  the  agent  will  be  paid  for. 

An  agent  employed  to  sell  goods  sometimes  guarantees 
his  principal  against  loss  from  any  of  the  customers  to  whom 
he  sells ;  in  such  case,  the  agent  is  termed  a  del  credere  agent. 
It  is  not  a  common  arrangement,  but  nevertheless  it  is  used 
occasionally  in  mercantile  circles. 

A  factor  with  a  del  credere  commission  or  agency  is  one 
who  in  consideration  of  a  higher  compensation  expressly 
agrees  to  pay  his  principal  the  price  of  the  goods  he  sells 
himself,  if  the  purchaser  does  not,^ 

A  contract  of  a  commission  merchant  whereby  he,  for  a 
commission  of  5  per  cent,  undertakes  to  sell  goods  and  guaran- 
tees his  sales,  need  not  be  in  writing." 


'aoCyc.  186.  XT    V     r 

»  Sherwood  v.  Stone,  14  N.  Y.  267. 


172 


AGENCY 


Review  Questions 


1.  Who  may  appoint  an  agent? 

2.  Who  may  act  as  agent  though  not  as  principal? 

3.  Distinguish  between  genera]  and  special  agents. 

4.  Can  a  real  estate  agent  as  such  sign  a  contract  binding  his  prin- 

cipal to  sell? 

5.  What  is  a  rfel  cr^rfer^  agent? 

6.  If  a  boy  came  into  a  store  and  wanted  to  buy  an  Ingersoll  watch 

and  have  it  charged  to  his  father,  what  would  you  advise  ? 


CHAPTER  XXII 

THE  CONTRACT  OF  AGENCY* 

§  126.    Appointment 

The  appointment  of  an  agent  may  be  oral,  written,  or  by 
u^age.  An  agent  can  be  legally  appointed  for  most  purposes 
by  an  oral  or  spoken  contract.  The  objection  to  an  oral  con- 
tract is  the  difficulty  of  proving  it,  and  the  strong  probability 
that  there  will  be  some  misunderstanding  as  to  the  terms  of 
the  contract  between  the  parties.  For  all  ordinary  purposes, 
an  oral  contract  of  agency  is  just  as  binding  as  a  written  con- 
tract, provided  its  terms  can  be  proved. 

Usually  an  agent  is  appointed  in  writing;  either  a  formal 
contract  is  drawn  up  and  signed  by  both  parties,  or  a  letter  or 
a  telegram  is  sent  and  the  other  party  replies  to  it,  in  which 
case  the  letter  or  the  telegram  and  the  reply  thereto  would 
constitute  the  written  contract. 

When  an  agent  is  appointed  to  vote  at  a  corporate  meet- 
ing, his  written  appointment  is  called  a  "proxy,*'  and  is  usually 
signed  by  the  principal  and  by  a  witness.  Some  corporations 
require  acknowledgment  of  the  proxy  before  a  notary  public; 
but  this  is  not  usually  necessary.     (See  Chapter  CII,  Forms 

3^-33)  „  ,     ^         ,         , 

When  an  agent  is  appointed  to  sell  land,  or  to  perform 

any  important  act,  or  to  conduct  any  important  negotiations, 

he' is  given  formal  power  of  attorney  under  seal  (see  Form 

28).     A  power  of  attorney  is  a  particular  kind  of  written 

contract  of  agency.    Where  land  is  to  be  deeded  or  a  mortgage 

executed,  the  agent  is  called  an  attorney  in  fact  and  it  is 

iFor  forms  of  agency  contracts,  see  Chapter  CII,  Forms  26-33. 


174 


AGENCY 


absolutely  essential  to  have  the  formal  power  of  attorney 
executed  just  as  carefully  as  a  deed,  and  acknowledged  before 
a  notary  so  that  it  can  be  filed  in  the  registrar's  office  with 
the  deed  or  the  mortgage.    (See  §  130.) 

In  many  cases  of  agency,  the  agent  is  appointed  to  an 
office  where  he  exercises  certain  powers  without  any  formal 
specification  of  what  he  can  do  and  what  he  cannot  do.  In 
such  instances,  the  agent  will  be  held  to  have  all  the  powers 
usually  attached  to  such  an  office.  For  instance,  a  ticket-seller 
for  a  railroad  is  an  agent  of  the  company  and  has  certain  well- 
known  powers;  beyond  these  he  cannot  go. 

^  An  agent  appointed  to  conduct  a  given  business  for  his 
principal  has  authority  to  do  all  things  incidental  or  essential 
to  the  performance  of  his  duties  as  agent.  If  the  duties  of  the 
agent  involve  the  management  of  a  mercantile  business,  and 
it  is  necessary  to  employ  salesmen,  the  principal  will  be  bound 
for  the  salaries  whether  he  has  given  express  authority  to  the 
agent  to  employ  assistants  or  not.* 

Notes: 

1.  An  oral  contract  is  hard  to  prove,  and  is  liable  to  be 

misunderstood. 

2.  An  agent  should  be  appointed  by  a  written  contract 

signed  by  both  parties. 

3.  An  agent  to  sell  or  to  mortgage  land  must  be  ap- 

pointed by  a  sealed  power  of  attorney  executed 
and  filed  like  a  deed. 

4.  An  agent  conducting  business  for  his  principal  has 

the  usual  powers  of  anyone  doing  such  a  business. 

§  137.    Express  Appointment 

The  express  appointment  of  an  agent  requires  a  specific 
designation  of  the  agent  by  the  principal.     Such  an  appoint- 

' Baldwin  ▼.  Garrett,  iii  Ga.  876. 


THE  CONTRACT  OF  AGENCY 


17s 


ment  consists  of  a  definite  contract  for  the  agent's  services. 
Most  agents  are  appointed  in  this  way. 

The  express  autJwrity  of  an  agent  is  that  authority  which 
the  principal  directly  grants  to  him.  This  includes  of  necessity 
(whether  the  agency  is  general  or  special)  all  such  powers  as 
are  necessary  and  proper  as  a  means  of  effecting  the  purpose 
for  which  the  agency  was  created.* 

The  apparent  authority  of  an  agent  is  that  which  the  prin- 
cipal knowingly  permits  the  agent  to  exercise,  or  which  the 
agent  exercises  without  objection  from  the  principal. 

§  138.    Implied  Appointment 

The  appointment  of  an  agent  is  implied  when  it  is  just  to 
infer  it  from  the  circumstances.  If  A  stands  by  and  sees  B 
sell  goods  which  belong  to  A  and  makes  no  protest,  but  ac- 
quiesces, A  will  be  held  to  have  appointed  B  his  agent  and  will 
be  bound  by  B*s  transactions.  This  is  also  called  "agency  by 
estoppel,**  because  A  will  be  estopped  from  denying  the  fact 
of  B's  agency  after  acquiescing  in  B's  acts  as  agent  and  per- 
mitting a  third  person  to  so  regard  him. 

When  in  the  usual  course  of  the  business  of  a  corporation 
an  officer  has  been  allowed,  in  his  official  capacity,  to  manage 
its  affairs  or  to  make  certain  contracts,  his  authority  to  repre- 
sent the  corporation  will  be  inferred  from  the  manner  in  which 
he  has  been  permitted  by  the  company  to  conduct  its  business.* 

A  wife,  as  the  domestic  manager  of  the  house,  may  buy 
all  things  that  are  naturally  and  ordinarily  necessary  for  the 
management  of  a  household.  She  may  contract  for  house- 
hold supplies,  domestic  service,  medical  attendance,  articles  of 
clothing  for  the  use  of  herself  and  children,  suitable  to  the 
style  in  which  the  husband  lives.  It  is  implied  that  she  is 
authorized  to  do  this,  and  the  husband  is  held  responsible  for 


*  Dispatch  Ptg.  Co.  v.  Nat'I  Bank,  109  Minn.  440. 

*  Martin  v.  Webb,  1 10  U.  S.  7. 


176 


AGENCY 


|l 


2. 


3. 


the  cost  She  is  not  held  to  be  authorized  beyond  this,  unless 
expressly  made  the  agent  of  the  husband  for  some  particular 
purpose,  in  the  same  manner  in  which  he  would  appoint  a 
stranger. 

Notes: 

I.  An  agent's  authority  should  be  expressed  by  a  writ- 
ten contract. 

But  an  agent's  authority  may  be  implied  from  the 
conduct  of  his  principal. 

An  agent  placed  in  a  position  requiring  authority 
has  implied  authority  to  do  all  things  that  are 
necessary. 

§  129.    Ratification 

Where  one  acts  as  the  agent  of  another  without  authoriza- 
tion, his  acts  as  agent  may  be  ratified  by  the  acquiescence  of 
the  principal  or  by  the  principal's  taking  the  benefit  of  the 
agent's  performance.  It  happens  not  infrequently  that  an 
agent,  appointed  for  a  definite  set  of  duties,  sees  opportunity 
to  do  something  for  which  he  has  no  authority,  but  which  will 
benefit  his  principal.  Sometimes  a  person  volunteers  to  act  as 
agent  for  a  principal  whom  he  has  not  had  opportunity  to  con- 
sult After  an  unauthorized  act  of  this  kind  has  been  done, 
the  principal  may  (when  he  learns  of  it)  : 

1.  Refuse  to  be  bound  by  it 

2.  Expressly  ratify  the  act, 

3.  Impliedly  ratify  it,  by  taking  the  benefit  of  the  action. 

If  the  principal  ratifies  the  unauthorized  action,  he  must 
ratify  jt  as  a  whole.  He  may  not  ratify  part  of  the  agent's 
act  and  refuse  to  recognize  the  other  part 

Ratification,  to  be  eflFectual,  must  be  made  with  full  knowl- 
tdg^  of  everything  which  has  any  material  bearing  on  the 
transaction. 


THE  CONTRACT  OF  AGENCY 


177 


Notes: 

1.  Ratification  has  the  same  effect  as  an  original  au- 

thorization. 

2.  Ratification  may  be  express,  or  by  acquiescence. 

3.  Taking  the  benefit  of  an  unauthorized  act  (with 

knowledge  of  the  circumstances)  is  a  ratification 
of  the  act 


§  130.    Sealed  Contracts 

An  agent,  in  order  to  execute  a  deed  or  sealed  instrument, 
must  be  appointed  by  an  instrument  of  like  formality. 

For  most  purposes  an  agent  may  be  appointed  by  a  simple 
written  agreement  or  by  word  of  mouth;  and  sometimes  his 
authority  may  be  implied  from  circumstances.  When,  how- 
ever, land  is  to  be  conveyed  or  mortgaged,  or  some  important 
instrument  like  a  deed  or  a  mortgage  which  is  to  be  recorded 
in  some  office  of  public  registry  is  to  be  executed,  it  must  be 
done  by  the  principal  himself  or  by  an  agent  appointed  by 
power  of  attorney  executed  with  all  the  formalities  of  a  deed 
or  instrument  for  record,  which  must  be  filed  in  the  same  office 
of  public  registry  as  the  deed  itself.  An  agent  appointed  by 
a  power  of  attorney  is  called  an  "attorney  in  fact." 

The  most  important  feature  of  a  deed  is  the  fact  that  it  is 
executed  under  seal.  It  is  usually  witnessed  and  is  then  ac- 
knowledged before  a  notary  public.  The  power  of  attorney 
requires  the  formal  execution  and  the  same  acknowledgment 
that  a  deed  would  require.  The  doctrine  may  be  summarized 
thus:  An  agent  to  contract  under  seal  must  be  appointed 
under  seal. 

Authority  under  seal  is  necessary  to  enable  an  agent  to 
bind  his  principal  by  a  deed  or  other  instrument  under  seal. 
It  is  a  technical,  but  a  thoroughly  settled  rule  of  the  common 
law,  that  an  agent  cannot  bind  a  principal  by  a  deed  of  con- 


17^  AGENCY 

veyance,  bond  or  other  instrument  under  seal,  unless  his 
authority  to  do  so  is  also  under  seal* 

There  is  no  doubt  about  the  general  rule  that  a  power  to 
execute  an  instrument  under  seal  must  be  conferred  by  an 
instrument  under  seal  executed  with  equal  solemnity.* 

Note: 

I.    A  deed  must  be  executed  by  the  owner  of  the  land 
or  by  his  agent  or  attorney  appointed  under  seal. 

§  131.    Appointment  of  Subagents 

Unless  expressly  or  impliedly  authorized,  an  agent  is  not 
empowered  to  appoint  a  subagent. 

When  an  agent  is  appointed,  he  is  appointed  because  the 
principal  places  special  trust  and  confidence  in  him.  It  would 
not  be  right  for  an  agent  to  have  power  to  delegate  his 
authority  to  someone  else,  whom  the  principal  might  not  care 
to  have  represent  him.  This  is  a  maxim  of  the  law— that 
delegated  authority  cannot  be  passed  on  to  someone  else  unless 
the  agent  has  been  expressly  authorized  to  do  so,  or  unless  it 
is  customary  in  the  particular  line  of  business. 

A  distinction  is  to  be  taken  in  this  matter  between  acts 
requiring  discretion  and  acts  that  simply  involve  some  mechan- 
ical performance.  An  agent  authorized  to  perform  some  im- 
portant work  could  employ  others  to  help  him  in  the  mechanical 
details.  If  it  were  customary,  he  could  employ  an  assistant 
superintendent  and  supervisors,  but  he  could  not  delegate  the 
active  supervision  to  someone  else. 

Notes: 
I.    An  agent  cannot  appoint  a  subagent. 
£    If  he  attempts  to  do  so,  ( i )  his  appointee  will  have 

no  power,  and  (2)  the  agent  will  be  personally 

liable  for  the  subagent's  wages. 

■Clark  &  Slcyles  on  Agency. 
•Long  ▼.  Hartwell,  34  N.  J.  L.  laa. 


THE  CONTRACT  OF  AGENCY 


179 


§133.    Servants  and  Employees 

An  employee  or  servant  may  also  be  an  agent  if  authorized 
to  do  business  with  third  parties. 

The  distinction  between  an  employee  or  servant  and  an 
agent  is  that  the  employee  or  servant  is  employed  to  do  certain 
things  and  has  no  relation  with  third  parties,  while  an  agent 
is  employed  to  represent  the  principal  in  dealings  with  third 
parties.  It  happens  in  many  cases  that  an  employee  is  also 
an  agent,  but  his  functions  as  an  agent  are  distinct  from  his 
functions  as  an  employee.  A  servant  employed  in  domestic 
activities  becomes  an  agent  when  he  or  she  is  authorized  to 
buy  supplies,  or  to  do  anything  else  that  involves  dealing  with 
third  parties.    (See  §  136.) 

If  a  delivery  man  has  been  in  the  habit  of  making  collec- 
tions, it  would  be  safe  to  pay  him.  If  a  package  has  been  sent 
t.  O.  D.  the  bearer  is  thereby  authorized  to  receive  the  amount. 
If  an  employer  acquiesces  in  his  employees*  acting  as  his 
agents,  he  will  be  estopped  from  denying  their  agency.  (See 
§  128.) 

Notes: 

1.  It  is  not  safe  to  deal  with  a  servant  or  an  employee 

unless  he  or  she  is  authorized  to  do  business  with 
third  parties. 

2.  It  is  not  safe  to  pay  money  to  truck  drivers,  delivery 

men,  and  errand  boys,  unless  it  is  known  that  they 
are  authorized  to  make  collections. 


§  133.    Void  Contracts  of  Agency 

Contracts  of  agency  for  an  unlawful  purpose,  as  is  the 
case  with  other  contracts  (see  §  39),  are  illegal  and  cannot  be 

enforced. 

For  example,  a  contract  to  conduct  a  gambling  establish- 
ment would  be  absolutely  void.    The  principal  could  not  com- 


^! 


i8o 


AGENCY 


pel  the  agent  to  carry  out  the  contract,  and  the  agent  could  not 
collect  any  compensation  for  the  unlawful  service. 

A  contract  to  procure  an  agent  to  commit  a  positive  crime, 
to  bribe  legislators,  to  forge  a  wiU,  or  to  commit  a  burglary,  is 
void  absolutely  and  entirely. 

Any  contract  opposed  to  public  policy  is  void. 
Certain  things  are  said  to  be  against  public  policy.  The 
following  are  examples:  to  employ  a  lobbyist  to  influence 
legislation;  to  contract  with  a  lawyer  to  organize  a  trust  in 
restraint  of  trade;  to  employ  a  broker  to  negotiate  a  marriage; 
or  to  bribe  a  purchasing  agent  to  buy  from  you. 

^  In  any  contract  to  do  an  unlawful  act,  both  agent  and 
principal  are  liable  to  damages  and  to  criminal  prosecution.  If 
an  agent  or  an  employee  were  engaged  to  smuggle  silks,  both 
the  subordinate  and  the  principal  are  liable  to  prosecution  and 
whatever  penalties  are  imposed.  In  legitimate  business  the 
agent  acting  within  his  authority  makes  his  principal  liable  but 
does  not  make  himself  responsible.  In  any  illegal  business, 
the  responsibility  attaches  to  principal  and  agent  alike.  (See 
§  146.) 

Notes: 

Any  contract  for  an  illegal  or  immoral  purpose  is 
void. 

An  agent  employed  to  act  illegally  cannot  collect  any 

compensation. 
In  a  contract  for  an  illegal  or  immoral  act,  both 

principal  and  agent  will  be  liable  to  damages  and 

to  criminal  prosecution. 


I. 


mm 


3- 


2. 

3» 


Review  Questions 

How  may  an  agent  be  appointed? 

What  is  necessary  to  appoint  an  agent  to  convey  land.? 

What  may  an  agent  do  in  the  absence  of  formal  specification? 


THE  CONTRACT  OF  AGENCY 


181 


4.  To  what  extent  is  a  wife  the  implied  agent  of  her  husband? 

5.  How  may  a  contract  be  ratified? 

6.  Define  "power  of  attorney"  and  "attorney  in  fact." 

7.  Can  an  agent  appoint  a  subagent?    Explain  answer. 

8.  Distinguish  between  a  servant  and  an  agent. 

9.  What  contracts  of  agency  are  void? 

10.  Can  an  agent  who  collects  a  gambling  debt  recover^  an  agreed 

commission  ? 

11.  What  is  agency  by  estoppel? 

12.  A's  wife  was  ill  and  the  family  physician  said  that  he  would 

like  to  consult  with  a  specialist.  A  said  that  he  was  willing. 
The  family  physician  called  in  the  specialist,  whose  diagnosis 
afterwards  proved  to  be  erroneous.  Later  the  specialist 
brought  suit  for  his  services,  to  which  A  made  the  defense 
that  he  did  not  employ  the  specialist,  and  that  the  diagnosis 
was  erroneous.  Can  the  specialist  recover?  Give  reason  for 
answer. 

13.  What  general  facts  are  necessary  to  validate  an  unauthorized 

assignment  by  an  agent? 

14.  Does  the  relation  of  agency  always  rest  on  consent? 

15.  In  your  state  is  there  any  provision  of  the  law  with  which  one 

must  comply  in  order  to  conduct  a  general  mercantile  or 
manufacturing  business  in  a  fixed  location  as  agent  for  an- 
other? 


i 


CHAPTER  XXIII 


THE  PRINCIPAL 


§  134-    Princiiml's  Duty  to  Agent 

The  principars  duty  to  his  agent  is  to  pay  him  his  com- 
pensation and  proper  expenses.  The  relation  of  the  principal 
to  the  agent  is  one  of  contract.  The  agent  agrees  to  render 
services  and  the  principal  promises  to  pay  him  a  salary,  a  com- 
mission, or  a  fixed  sum.  If  no  amount  of  compensation  has 
been  fixed,  the  agent  will  be  entitled  to  whatever  his  services 
are  reasonably  worth.  Unless  provided  otherwise,  the  prin- 
cipal is  bound  to  reimburse  hira  for  whatever  expenses  he  has 
properly  incurred.  The  contract  should  be  a  written  one  to 
avoid  misunderstandings  and  to  supply  evidence  of  what  the 
agreement  really  was. 

The  usual  rules  which  govern  employment  prevail  in  this 
relation.  If  the  principal  terminates  the  agency  before  the  end 
of  the  period  of  employment,  he  must  compensate  the  agent  for 
the  unexpired  term  less  any  amount  the  agent  can  secure  from 
some  other  employment.  If  the  agent  were  to  be  paid  a  com- 
mission or  a  gross  sum  and  the  principal  were  to  terminate  the 
agency  unreasonably,  the  principal  would  be  liable  to  pay 
damages  for  the  breach  of  his  contract.  If  the  agent  had 
completed  his  undertaking,  even  though  the  principal  did  not 
take  advantage  of  what  the  agent  had  done,  the  agent  neverthe- 
less would  be  entitled  to  full  payment  for  his  services. 

In  a  Missouri  case,  one  Gelatt,  a  real  estate  agent,  was 
employed  by  the  owner  of  a  business  block  to  find  a  purchaser 
for  the  property.    He  found  a  buyer,  but  the  owner  advanced 

183 


THE  PRINCIPAL 


183 


the  price  and  broke  up  the  deal.    The  court  decided  that  Gelatt 
was  entitled  to  his  full  compensation.* 

If  the  principal  makes  it  impossible  for  the  agent  to  com- 
plete the  undertaking,  he  must  compensate  the  agent. 

Note: 

I.  The  principal's  duty  to  his  agent  is  simply  to  deal 
fairly.  An  express  contract  in  writing  will  pre- 
vent misunderstanding. 

§  135.    Principal's  Duty  to  Third  Party 

If  the  principal  leads  the  third  party  to  think  that  the  agent 
has  authority  beyond  his  express  authorization,  the  principal 
will  be  bound  by  whatever  the  agent  does  in  the  exercise  of 
his  apparent  authority.  In  many  such  cases,  the  principal  be- 
comes bound,  not  by  any  positive  thing  which  he  has  said  or 
done,  but  because  of  his  acquiescence  in  what  the  agent  was 
doing,  or  his  failure  to  protest  at  the  proper  time.  In  other 
cases  the  principal  has  allowed  the  agent  to  do  certain  things 
beyond  the  latter's  authority;  and  this  has  continued  imtil  a 
course  of  dealing  has  become  established.  In  all  such  cases, 
third  persons  are  justified  in  assuming  that  the  agent's  ap- 
parent authority  is  real,  and  the  principal  will  be  bound. 

The  principal  is  liable  for  all  acts  done  by  the  agent  within 
the  apparent,  as  well  as  actual,  authority  given.  (See  §  128.) 
Third  parties  dealing  with  an  agent  do  not  know  his  secret 
instructions,  and  whatever  authority  the  agent  appears  to  have 
can  be  used  by  him  to  bind  his  principal.  The  third  party 
must,  however,  (in  good  faith)  believe  that  the  agent  has  the 
authority.^  The  agent's  own  representations  as  to  the  extent 
of  his  authority,  if  false,  will  not  bind  his  principal. 

An  agent  to  sell  goods  who  has  possession  and  is  in  position 
to  deliver  is  authorized  to  receive  payment;  but  if  he  is  not  in 


» Gelatt  V.   Ridge.   177  Mo.  553- 
'Johnson  v.  Hurley,   115  Mo.  513. 


n 


i 


184 


AGENCY 


possession  of  the  goods  he  is  not  authorized  to  receive  pay- 
ment.    Usage  and  trade  customs  count  heavily  in  deciding 

what  constitutes  the  apparent  authority  of  an  agent 

* 
Notes: 

1.  When  an  agent  is  appointed,  he  is  given  as  much 

authority  as  his  position  seems  to  warrant. 

2.  Secret  instructions  or  limitations  on  the  agent's  au- 

thority do  not  bind  third  parties  unless  such  in- 
structions are  known  to  these  parties. 

§  136.    Principars  Liability 

A  principal  is  liable  for  all  fraudulent,  negligent,  or  wrong- 
ful acts  of  his  agent  in  the  scope  of  his  employment.  If  this 
were  not  so,  it  would  be  possible  for  a  man  to  perpetrate  all 
manner  of  fraud  and  wrong,  and  to  escape  punishment  by 
employing  some  agent  of  no  repute  to  do  the  dirty  work.  A 
principal  is  liable  for  carelessness,  deceptions,  false  pretenses, 
or  wrongful  acts  of  any  kind  committed  by  the  agent  in  carry- 
ing out  the  purposes  of  his  principal. 

The  principal  is  liable  for  any  damages  to  third  persons 
arising  from  the  mistakes  or  the  negligence  of  an  agent  or  an 
employee  while  acting  in  his  service. 

In  a  case  in  Rhode  Island,  a  salesman  suspected  a  woman 
customer  of  stealing  a  package  of  spoons.  He  detained  her, 
sent  for  a  policeman,  had  her  taken  to  a  police  station  and 
searched.  She  brought  suit  against  the  firm  that  employed  the 
salesman  for  the  wrongful  arrest  and  search,  and  was  awarded 
damages.    The  court  said: 

'  If  in  the  performance  of  his  duty  he,  the  salesman,  mis- 
took the  occasion  for  it  or  exceeded  his  powers  or  employed 
an  improper  degree  of  compulsion,  the  mistake  and  the  ex- 
cess must  be  answered  for  by  the  master.' 


H 


k 


THE  PRINCIPAL 


I8S 


'Staples  ▼.  Sduaidt,  18  R.  I.  324. 


If  an  automobile  salesman  takes  out  a  machine  belonging 
to  his  employer  to  show  to  a  prospective  customer,  and  care- 
lessly runs  over  a  foot  traveler,  the  employer  will  be  respon- 
sible. If  the  salesman  takes  the  machine  out  after  hours  for 
his  own  pleasure  and  does  the  same  thing,  the  employer  will 
not  be  responsible,  because  the  accident  did  not  occur  within 
the  scope  of  the  salesman's  duties. 

Notes: 

1.  A  principal  is  responsible  for  whatever  is  done  by 

his  agent  within  the  scope  of  his  employment. 

2.  A  principal  is  not  responsible  for  the  acts  of  his 

agent  done  outside  the  scope  of  his  employment. 

§  137.    An  Undisclosed  Principal 

An  undisclosed  principal  may  take  the  benefit  of  any  con- 
tract made  by  his  agent.  As  has  been  stated,  an  agent  may 
conceal  the  fact  that  he  is  acting  for  a  principal.  In  such  a 
case,  the  agent  renders  himself  personally  liable,  but  a  princi- 
pal has  the  right  to  take  whatever  benefit  may  come  from  any 
advantageous  contract  made  by  his  agent.  The  undisclosed 
principal  is  liable  if  the  third  party  discovers  his  existence. 
With  this  liability  the  principal  has  the  right  to  take  the  benefit 
of  the  contract. 

Byington  v.  Simpson  was  a  case  in  which  a  building  con- 
tract was  signed  "J-  ^-  Simpson,  Agt."  The  third  party  knew 
that  Simpson  was  in  fact  contracting  for  his  wife.  The  wife 
was  held  liable  though  her  name  was  not  mentioned.* 

The  third  party,  upon  discovery  of  an  undisclosed  principal, 
may  hold  responsible  either  the  agent  or  the  undisclosed  princi- 
pal. He  must  elect  to  hold  one  or  the  other;  he  cannot  hold 
both.    To  this  rule  there  are  the  following  exceptions: 

I.  If  the  contract  made  by  the  agent  is  in  the  form  of 
a  negotiable  instrument  or  a  sealed  contract,  the  undisclosed 

*  Byington  v.  Simpson,  134  Mass.  169. 


i86 


AGENCY 


principal  has  no  rights  or  liabilities.  He  cannot  sue  or  be 
sued,  as  such  instruments  are  considered  as  having  been  taken 
solely  on  the  face  of  the  names  appearing  thereon. 

2.  If  the  principal,  before  his  identity  was  disclosed,  in 
good  faith  paid  the  money  due  on  the  contract  to  the  agent, 
he  cannot  be  held  liable.  This  is  perfectly  fair  to  the  third 
party  because  he  gave  credit  to  the  agent  and  expected  to  get 
payment  from  him  and  had  no  knowledge  that  there  was 
somebody  behind  the  agent.  The  third  party  may  collect  from 
the  agent  if  he  can,  but  it  would  be  unfair  to  let  him  collect 
from  the  unnamed  principal  who  in  that  case  would  have  to 
pay  a  second  time. 

3.  If  the  third  party  after  learning  that  there  is  a  certain 
principal,  unequivocally  chooses  to  hold  the  agent,  he  cannot 
alter  his  decision  and  proceed  against  the  principal. 

4.  If  the  contract  states  dearly  that  it  is  made  only  by 
the  parties  signing  and  that  no  other  parties  are  to  be  intro- 
duced into  the  contract,  the  undisclosed  principal  rule  would 
not  apply. 

Notes: 

1.  The  agent  who  does  not  disclose  his  principal  takes 

the  entire  responsibility  on  himself. 

2.  The  undisclosed  principal  is  liable  when  discovered. 


Review  Questions 


Jl* 


What  are  the  duties  of  a  principal  to  his  agent? 
What  rules  usually  prevail  in  the  relation  between  agent  and 
principal  ? 

3.  For  what  acts  of  the  agent  is  the  principal  responsible? 

4.  What  docs  the  "scope  of  employment"  mean? 

5.  Do  false  representations  of  an  agent  in  the  "scope  of  his  employ- 

ment" bind  the  principal? 

6.  What  is  an  undisclosed  principal ?   What  risk  does  his  agent  take? 


THE  PRINCIPAL 


187 


7.  What  may   a   third   party  do   on  discovery  of  an   undisclosed 

principal  ? 

8.  May  the  principal  benefit  by  any  transaction  in  which  the  agent 

conceals  the  fact  that  there  is  a  principal? 

9.  What  is  the  rule  as  to  an  undisclosed  principal  in  the  case  of  a 

sealed  instrument  or  negotiable  paper? 


II 


CHAPTER  XXIV 

THE  AGENT 

§  138.    Agent's  Duty  to  Principal 

An  agent  is,  in  the  line  of  his  duties,  subordinate  to  his 
principal.  Therefore,  it  is  an  essential  feature  of  his  employ- 
ment that  he  should  obey  orders,  act  with  good  faith,  and  use 
such  prudence,  skill,  and  diligence  in  his  duties  as  are  requisite 
for  their  proper  discharge.  He  must,  if  necessary,  keep  proper 
accounts  and  render  statements  to  his  principal.  He  cannot 
delegate  any  duty  demanding  discretion  to  others  without 
special  authority.  If  he  does  not  do  all  this,  if  he  fails  in  his 
duty,  he  may  be  discharged,  his  compensation  may  be  denied, 
and  he  may  be  responsible  in  damages. 

Any  profits  made  in  the  course  of  an  agent's  employment 
belong  entirely  to  his  principal.  An  agent  may  not  use  his 
agency  for  his  own  advantage. 

One  Cummings,  an  agent  for  the  sale  of  stock  for  the 
Diamond  Match  Company,  sold  stock  of  the  company  amount- 
ing at  par  to  $170,000  for  $200,000,  and  kept  the  profit  of 
$30,000  for  himself.  Later  this  was  discovered  by  the  com- 
pany, which  brought  suit  and  recovered  the  whole  amount/ 

In  making  a  contract  with  an  agent  or  confidential  em- 
ployee, it  is  safest  to  contract  that  he  shall  not  at  any  time, 
either  while  he  is  employed  or  thereafter,  reveal  or  use  for  the 
benefit  of  others  any  special  information,  secret  processes,  lists 
of  customers,  or  other  private  matters  that  may  be  learned  in 
the  course  of  his  duty.  The  courts  will  protect  such  an  agree- 
ment. 


*  Graliam  ▼.  Cummings.  208  Pa.  St.  516. 

188 


THE  AGENT 


189 


In  a  Michigan  case,  a  party  employed  in  a  manufactory  of 
fly  paper,  under  contract  not  to  use  methods  elsewhere,  after 
severing  his  connection  with  the  factory,  made  plans  to  give 
others  the  benefit  of  his  information.  The  court  granted  an 
injunction  to  prevent  him  from  revealing  the  processes.^ 

Where  a  salesman  or  solicitor  is  employed  to  work  up 
trade,  he  necessarily  becomes  familiar  with  the  list  of  cus- 
tomers. In  such  a  case,  a  contract  with  an  agent  that  he  shall 
not,  for  a  period  of  years,  engage  with  any  other  house  in 
the  same  line  doing  business  in  the  same  territory,  will  be  sus- 
tained by  the  courts. 

What  is  here  said  as  to  the  duty  of  the  agent  refers  to  a 
general  agency,  where  the  agent  gives  his  entire  services  to 
one  principal.  In  cases  of  special  agency,  what  is  said  of  the 
agent's  duty  applies  only  so  far  as  is  necessary  to  effect  the 
object  of  the  agency.  A  bank  may  be  an  agent  to  collect  a 
draft,  but  is  not  called  upon  to  exercise  general  obedience, 
loyalty,  etc. 

Notes: 

1.  A  general  agent  must  be  obedient,  loyal,  careful, 

skilful,  honest,  and  of  good  habits. 

2.  A  special  agent  is  required  to  exercise  only  such 

qualities  as  are  requisite  to  effect  the  purpose  of 
his  agency. 

§  139*    Agent's  Obedience 

Disobedience  is  good  cause  for  discharge  or  refusal  to 
compensate  an  agent,  and  renders  him  liable  for  any  resulting 
damage.  It  is  an  agent's  duty  to  obey  orders ;  and  by  so  doing 
he  relieves  himself  of  any  responsibility  in  case  of  misadven- 
ture. 

If,  however,  circumstances  should  arise  which  make  it 


'Thurm  Company  v.  Tloczynski,  114  Mich.  149. 


igo 


AGENCY 


necessary  to  act  contrary  to  the  instructions  he  has  received, 
it  is  his  duty  to  do  this,  provided,  of  course,  that  it  is  impos- 
sible to  consult  his  principal  before  acting.  Emergencies  may 
ocair  where  it  is  the  duty  of  the  agent  to  do  the  best  thing 
possible,  even  though  it  involves  his  disregarding  orders. 
Where  no  emergency  exists,  however,  the  agent  violates  his 
directions  at  his  own  risk  It  is  the  principal's  right  to  decide 
how  he  wishes  his  matters  attended  to;  and  if  the  agent  obeys 
and  loss  ensues,  it  is  the  loss  of  the  principal.  If  a  shipping 
agent  or  railroad  varies  directions  that  goods  are  to  go  over 
some  particular  line,  the  agent  or  the  railroad  incurs  the 
liability  of  an  insurer. 

An  agent  who  has  been  instructed  to  sell  for  cash  has  no 
authority  to  allow  credit.  If  he  gives  credit  and  loss  ensues, 
he  is  responsible.  If  he  is  authorized  to  buy  or  to  sell  at  a 
certain  price,  he  may  not  go  beyond  this.  This  is  not  to  be 
understood  as  prohibiting  trifling  departures  and  immaterial 
variations  from  exact  instructions.  The  law  does  not  regard 
negligible  things. 

An  agent  who  is  instructed  to  ship  goods  or  to  r«nit  money 
in  a  particular  way  must  obey  his  instructions  to  the  letter. 

Notes: 

An  agent  must  obey  orders  if  he  does  not  want  to 

make  himself  liable. 
When  an  emergency  exists  he  may  act  contrary  to 

instructions. 
A  principal  should,  where  possible,  give  explicit 

orders  to  his  agent 


I. 


m» 


3- 


§140.    Agent's  Good  Faith 

Good  faith  is  essential  on  the  part  of  anyone  acting  in  the 
capacity  of  agent.  If  an  agent  is  found  to  be  working  for  his 
own  interests  as  opposed  to  those  of  his  employer,  he  may  be 
discharged  summarily.    If  he  makes  false  reports  or  deceives 


THE  AGENT 


191 


his  employer,  or  defrauds  him  in  any  way,  he  may  be  dis- 
charged ;  and  he  wiU  have  forfeited  any  claim  to  compensation. 
If  he  learns  of  anything  in  the  line  of  his  business  to  the 
pnncpal  s  advantage,  it  is  his  duty  to  let  his  principal  know 
and  have  the  benefit  of  it. 

A  broker,  in  a  Michigan  case,  sold  land  to  a  party  whom 
the  owner  had  previously  excepted  from  those  to  whom  the 
broker  might  sell.    It  was  held  that  the  latter  was  not  entitled 

to  commission.^ 

In  a  Massachusetts  case,  an  agent  made  a  sale  of  some 
property,  and  in  rendering  the  account  to  his  employer  charged 
h.m  $50  as  paid  to  an  attorney  for  examining  the  title,  whereas 
he  really  paid  only  $25.  The  court  held  that  he  lost  his  right 
to  commission.*  ° 

The  Agent  Must  Not  Act  for  Both  Parties.  An  agent  may 
not  represent  both  parties  to  a  transaction.  He  may  not  earn 
a  commission  from  both  buyer  and  seUer.  This  is  a  rule  that 
holds  good  everywhere.  But  it  is  said  that  a  double  agencv 
may  be  valid  where  both  parties  know  of  the  double  agencv 
and  agree  to  it;  it  is  then  understood  that  the  agency  requires 
no  independent  discretion. 

The  Agent  Must  Not  Act  for  Himself.  If  the  agent  is 
employed  by  a  principal  to  manage  his  business,  what  he  does 
is  done  for  the  principal.  It  is  not  right  for  the  agent  to  be 
mterested  adversely;  and  all  the  profits  that  are  made  in  con- 
nection with  the  principal's  business  belong  to  the  principal 
unless  he  has  previously  agreed  to  give  the  agent  a  share  of 
the  profits  as  part  or  aU  of  his  compensation. 

If  the  agent  in  the  course  of  acting  for  his  principal  obtains 
any  particular  advantage  to  himself,  and  the  principal  dis-     J 
covers  it,  the  latter  can  hold  the  agent  accountable  for  the  ^ 
profits  or  the  property  so  obtained. 


•  Ranney  t.  Henry.  t«o  Mich.  597. 
Little  V.  Phipps  et  «/.,  208  Mass.  33 1. 


192 


AGENCY 


An  Agent  Must  Not  Compete  With  His  Principal.  An 
agent  must  not  be  interested  adversely  to  his  principal. 
Neither  may  he  represent  and  sell  goods  for  a  competitor  of 
his  principal.  An  employer  has  a  right  to  his  agent's  absolute 
loyalty.  If  an  agent  uses  his  knowledge  of  his  principal's 
affairs  to  secure  an  advantage  for  himself,  the  courts  will 
compel  him  to  make  restitution.  The  law  moves  on  a  high 
plane  in  matters  of  this  kind. 

The  Agent  Must  Be  of  Good  Habits,  Any  habits  which 
interfere  with  the  proper  discharge  of  the  agent's  duty  are 
sufficient  reason  for  his  discharge.  Drunkenness  in  the  day- 
time or  while  attending  to  business  is  undoubtedly  sufficient 
reason  for  dismissal.  As  in  the  case  of  other  employees,  the 
circumstances  must  be  considered. 

Generally  speaking,  an  agent  may  be  discharged  for  dnink- 
cnness,  gambling,  or  licentiousness.  Possibly,  the  courts  wotild 
not  in  all  cases  justify  too  dose  an  inquisition  into  the  private 
habits  of  employees.  A  bank,  however,  employs  detectives; 
and  if  an  employee  indulges  in  loose  living  he  is  discharged 
and  has  no  recourse.  Usually  an  agent  who  is  discharged  for 
any  reason  of  this  kind  cannot  afford  to  risk  the  notoriety 
involved  in  an  attempt  to  hold  his  employer  for  damages. 

Non-Payment  No  Excuse  for  Non-Performance,  The 
fact  that  the  agent  is  unpaid  does  not  affect  his  responsibility. 
The  agent's  liability  does  not  depend  upon  how  well  he  is  paid 
for  what  he  does,  or  whether  he  is  paid  at  all ;  for,  if  he  under- 
takes to  do  anything  for  another,  he  must  do  it  well ;  and  he 
is  responsible  in  case  of  bad  faith,  negligence,  or  lack  of  skill. 

Notes: 

'  I.    The  doctrine  of  the  law  on  the  subject  of  the  agent's 
good  faith  is  on  an  exceptionally  high  plane. 
2.    The  agent  must  not  act  as  the  agent  of  both  parties 
unless  both  know  of  and  agree  to  it 


THE  AGENT 


193 


3.  The  agent  must  not  act  for  himself  in  the  principal's 

affairs. 

4.  The  agent  must  not  compete  with  his  principal. 

5.  The  agent  must  be  of  good  habits. 

§  Z4X.    Agent's  Care,  Skill,  and  Diligence 

If  anyone  undertakes  the  duties  of  an  agent,  he  is  assumed 
to  have  the  necessary  skill  and  ability  to  perform  the  said 
duties.  In  all  matters  connected  with  his  agency,  he  is  ex- 
pected to  act  as  an  ordinarily  prudent,  careful  business  man 
would  act  in  the  conduct  of  his  own  affairs.  If  the  agent  is 
a  lawyer,  he  undertakes  to  have  professional  ability  to  repre- 
sent his  client  in  an  adequate  manner.  If  he  is  a  financial  agent 
and  invests  his  client's  funds  imprudently,  he  is  responsible. 

The  rule  is  well  settled  that  an  agent  is  not  only  bound 
to  act  in  good  faith,  but  to  exercise  reasonable  diligence,  and 
such  care  and  skill  as  are  ordinarily  possessed  by  persons  of 
common  capacity  engaged  in  the  same  business.^ 

A  firm  engaged  as  insurance  brokers,  if  it  takes  out  poli- 
cies for  its  clients  in  irresponsible  companies,  will,  in  event 
of  loss,  be  required  to  make  good  the  damage  resulting  from 
its  neglect  to  use  proper  care.® 

Custody  of  Funds.  It  is  the  duty  of  the  agent  to  account 
for  all  funds  and  property  of  the  principal  which  come  into 
his  possession.  In  this  particular  he  must  obey  the  rules  that 
govern  one  person  who  holds  the  property  of  another. 

The  agent  should  not  deposit  funds  belonging  to  his  prin- 
cipal to  his  own  bank  account;  but  should  open  a  separate 
account  in  the  name  of  his  principal,  or  in  his  own  name  as 
agent.  If  he  does  this,  he  is  not  responsible  in  the  event  of 
the  bank's  failure  and  the  loss  of  part  or  all  of  the  funds.  In 
the  same  way,  it  is  his  duty  to  turn  all  money  and  other 

■  Whitney  v.  Martine,  88  N.  Y.  535. 

*  Sheppard  v.  Davis,  42  A.  D.  (N.  Y.)  46a. 


|/ 


194 


AGENCY 


THE  AGENT 


195 


property  in  his  possession  over  to  the  principal  or  to  the 
principal's  order. 

Any  money  held  by  an  agent  for  his  principal  is  a  trust 
fund. 

In  an  Indiana  case  the  judge  said: 

In  case  it  becomes  the  duty  of  an  agent  or  a  trustee  to 
deposit  money  belonging  to  his  principal,  he  can  escape  risk 
by  making  the  deposit  in  his  principal's  name;  or  by  so  dis- 
tinguishing it  on  the  books  of  the  bank  as  to  indicate  in  some 
way  that  it  is  the  principal's  money.  If  he  deposits  it  in  his 
own  name,  he  will  not,  in  case  of  loss,  be  permitted  to  throw 
the  loss  on  his  principal^ 

Notes: 

1.  The  theory  of  the  law  in  these  matters  is  better  than 

the  results  in  actual  practice.  It  is  in  most  cases 
impossible  to  obtain  legal  redress  for  the  common 
lack  of  care,  skill,  and  diligence  in  agents. 

2.  In  all  matters  relating  to  the  care  and  the  custody  of 

money  belonging  to  others,  too  great  care  cannot 
be  exercised. 

3.  The  treasurers  of  clubs,  informal  organizations,  and 

unincorporated  associations,  should  observe  the 
rules  that  have  been  given  for  agents  in  charge  of 
ftmds. 

§  14a.    The  Agent's  Signature 

The  agent  is  acting  for  the  principal,  therefore  when  he 
signs  a  contract  he  should  sign  the  principal's  name,  followed 
with  his  own  in  this  form:  "By  Henry  Parker,  Agent."  When 
there  is  a  regular  course  of  business,  a  rubber  stamp  will  prob- 
ably be  used  with  a  blank  for  the  written  signature  of  the 
agent,  as  follows:  "George  Wayman,  By ,  Agent'*   Such 


*  Walmer  v.  Dolan,  108  IncL  500. 


a  signature  is  safe  and  in  no  case  can  it  bind  the  agent  per- 
sonally. 

A  corporation  can  act  only  by  its  agents.  The  rule  as 
to  the  signature  of  contracts  is  the  same  and  the  name  of  the 
corporation  followed  by  the  name  of  the  officer  signing  is  the 
proper  form.  Letters  are  often  signed  by  the  officer,  as  "James 
Haywood,  President,"  the  letterhead  showing  the  name  of 
the  corporation  and  that  the  individual  signing  holds  the  office 
he  claims. 

The  better  practice  is  to  have  the  full  corporation  signature : 

Edgemont  Water  Company, 

By  Harvey  Gray,  Treasurer. 

Where  notes  or  other  negotiable  papers  are  to  be  signed 
by  the  agent  for  a  corporation  or  other  principal,  it  is  not  safe 
to  sign  except  in  the  approved  form,  the  principal's  name  in 

full  followed  with  "By ,  Agent."    Any  other  signature 

may  not  only  fail  to  bind  the  corporation  or  other  principal  but 
may  involve  the  officer  or  agent  in  a  personal  liability  as  maker 
or  indorser. 

§  X43.    Agent's  Duty  to  Third  Party 

Observance  of  the  usual  rules  of  fair  dealing  and  honest 
treatment  is  the  only  duty  owed  by  the  agent  to  the  third  party. 
The  agent  is  the  representative  of  his  principal,  and  is  to  work 
in  the  interests  of  his  principal.  If  he  resorts  to  trickery  or 
fraud,  he  himself  is  liable  for  any  damages  caused  to  the  third 
party.  An  agent  cannot  be  held  for  a  legitimate  business  con- 
tract within  the  scope  of  his  authority.  He  binds  his  principal, 
not  himself.  But  his  principal  cannot  authorize  him  to  do 
wrong;  and  if  he  does  wrong  both  he  and  his  principal  are 
held. 

The  agent  may  legally  do  whatever  the  law  allows  his 
principal  to  do.    The  law  is  not  at  its  best  when  it  defines  the 


I 


196 


AGENCY 


THE  AGENT 


l|)| 


lit 


rights  of  buyer  and  seller.  The  better  business  houses,  in  their 
actual  practice,  act  on  a  plane  far  higher  than  that  which  the 
law  compels.  In  other  words,  good  business  prescribes  a  much 
higher  standard  of  morality  in  the  matter  of  sales  than  does 
the  law. 

On  this  account  the  standards  of  good  business  are  given 
here,  rather  than  the  legal  requirements.  Let  your  dealings  be 
characterized  by  fairness  and  liberal  treatment.  Deal  with  the 
third  party  in  such  a  manner  that  you  can  deal  with  him  again. 
All  good  and  permanent  business  is  to  the  advantage  of  both 
parties.  Make  every  customer  a  lasting  business  friend.  Treat 
him  as  you  would  like  to  have  him  treat  you  in  a  like  case. 

Note: 

I.  If  an  agent  has  a  principal  who  does  not  believe  in 
the  above  standard  of  good  business,  he  had  better 
look  for  another  job. 

§  144.    Limitation  of  Agent's  Authority 

The  agent  rarely  has  unlimited  authority.  In  established 
positions,  such  as  that  of  a  bank  cashier,  a  railroad  conductor, 
or  a  retail  salesman,  the  duties  are  settled  and  the  authority 
of  the  incumbent  is  known  to  his  principal,  to  those  he  deals 
with,  and  to  himself.  Usually  an  agent  in  such  a  position 
keeps  to  his  routine,  and  his  powers  are  entirely  familiar  to 
all  concerned. 

As  between  his  principal  and  himself,  the  agent's  authority 
is  limited:  (i)  by  the  limitations  usual  to  the  employment,  and 
(2)  by  the  limitations  expressed  in  the  agreement.  If  he  ex- 
ceeds these  limitations,  he  may  be  discharged  from  his  position, 
and  may  be  held  for  damages  if  he  is  responsible. 

Iti  dealing  with  third  parties,  the  agent,  in  all  those  cases 
where  his  apparent  authority  exceeds  his  real  authority,  may 
bind  his  principal.  In  such  an  event,  the  agent  must  answer 
to  his  principal  for  his  abuse  of  authority. 


197 


Notes: 

1.  An  agent  has  the  usual  authority  pertaining  to  his 

position,  unless  restricted  by  special  agreement. 

2.  An  agent  has  always  such  authority  as  his  agreement 

with  his  principal  permits. 

3.  An  agent  may  bind  his  principal  wrongfully  when 

his  apparent  authority  exceeds  his  real  authorit3\ 

§  145.    Agent's  Fraudulent  Conduct 

The  question  of  the  agent's  bad  faith  to  his  principal  has 
already  been  discussed.  If  he  perpetrates  a  fraud  on  a  third 
party  while  transacting  his  principal's  business,  both  principal 
and  agent  are  liable.  The  agent  will  not  be  able  to  shift  re- 
sponsibility to  his  principal.  A  principal  cannot  authorize  his 
agent  to  commit  fraud. 

In  Weber  v.  Weber,  the  action  was  against  Caroline  Weber 
for  stating  positively  that  there  was  no  mortgage  on  a  piece 
of  land  which  she  was  selling  as  the  agent  of  her  husband. 
The  court  said: 

All  persons  who  are  active  in  defrauding  others  are  liable 
for  what  they  do,  whether  they  act  in  one  capacity  or  an- 
other.* 

In  a  case  where  the  president  of  a  medical  institute  was 
made  a  party  defendant  in  a  proceeding  against  the  institution 
for  defrauding  a  patient,  the  judge  said: 

We  are  not  aware  of  any  rule  of  law  which  will  excuse 
and  absolve  a  person  from  the  consequence  of  his  own  wrong 
doing,  because  he  happened  to  be  the  agent  of  another  at  the 
time  of  the  perpetration  of  the  wrong.* 

Notes: 

I,     An  agent  cannot  use  his  agency  to  protect  him  in 
doing  wrong. 


•  Weber  ▼.  Weber,  47  Mich.  569. 

*  Hedin  ▼.  MinneapoLts  Medical  Institute,  6a  Minn.  146. 


igB 


AGENCY 


THE  AGENT 


199 


II 


2.     In  case  of  fraud  or  misrepresentation,  the  agent  as 
well  as  the  principal  is  liable  to  the  person  injured. 

§  X46.    Agent's  Liability 

The  agent  makes  himself  liable  with  his  principal,  as  we 
have  seen,  when  he  is  guilty  of  any  fraudulent  conduct 

Where  the  business  is  illegal,  the  agent  is  liable  with  the 
principal. 

He  also  makes  himself  liable  when  he  exceeds  his  authority, 
unless  the  third  party  knows  the  nature  of  the  agent's  action. 

In  most  cases  where  an  agent  deals  with  third  parties,  the 
third  parties  depend  upon  the  agent  to  inform  them  correctly 
as  to  the  extent  of  his  authority.  If  the  agent  deceives  them 
as  to  this,  he  makes  himself  personally  liable  to  the  third  party 
to  the  same  extent  that  he  would  be  had  he  made  the  contract 
in  his  own  name  instead  of  that  of  his  principal. 

One  Kroeger  insured  his  premises  through  Pitcaim,  an 
agent,  who  told  Kroeger  that  he  could  keep  a  small  amount 
of  gasoline  on  the  premises  without  making  his  policy  void. 
Pitcaim  had  no  authority  to  do  this.  The  premises  were 
burned,  and  Kroeger  could  not  recover  from  the  insurance 
company  on  account  of  the  storage  of  gasoline.  The  court  did, 
however,  allow  him  to  recover  his  damages  from  Pitcaim." 

If  the  agent  has  apparent  authority  but  is  limited  by  pri- 
vate instmctions  from  his  principal,  he  can  nevertheless  bind 
his  principal  by  his  contract  within  the  scope  of  his  apparent 
authority.  In  such  a  case,  he  is  liable  to  his  principal  for  any 
unwarranted  action. 

It  happens  sometimes  that  an  agent  deals  with  third  parties 
and, assumes  to  be  the  principal;  i.e.,  he  does  not  represent 
himself  to  be  an  agent,  or  disclose  the  fact  that  he  is  acting  for 
someone  else.  In  such  a  case  he  will  be  held  personally,  as 
though  he  were  the  principal.    This  is  plainly  just  and  right. 

1*  Kroeger  ▼.  Pttcaim,  loi  Pk.  St  311. 


Where  an  agent  represents  a  principal  who  is  non-existent 
or  irresponsible,  he  binds  himself.    On  occasion  agents  have  y 
represented  themselves  as  having  a  principal  who  did  not  exist  / 
— in  such  cases  they  bind  themselves.    Thus,  parties  acting  as^ 
directors  in  a  non-existent  corporation  may  be  held. 

If  an  agent  represents  any  irresponsible  body,  such  as  a 
social  club,  a  meeting,  or  any  informal  organization,  he  will  in 
all  such  cases  render  himself  liable.  If  the  agent  is  authorized 
by  a  motion,  all  members  who  voted  for  the  motion  are  liable, 
and  those  who  are  forced  to  pay  can  hold  for  contributions  all 
others  who  joined  in  authorizing  the  expense.^^ 

The  Northeastern  Pigeon  &  Bantam  Society,  a  voluntary 
association,  held  an  exhibition  of  fancy  stock  and  offered 
premiums.  The  expense  exceeded  the  receipts.  The  court 
held  that  those  members  who  paid  the  loss  could  bring  suit  to 
compel  all  the  other  members  who  had  voted  to  hold  the  ex- 
hibition to  pay  their  pro  rata.^* 

A  common  case  under  this  general  head  is  that  of  a  pro- 
moter who  incurs  liabilities  for  a  corporation  before  it  is  in- 
corporated. Until  the  corporation  has  come  into  being,  it 
cannot  appoint  an  agent ;  therefore  the  general  rule  is  that  the 
corporation  cannot  be  bound,  and  that  those  who  deal  with  the 
promoter  must  look  to  him  for  compensation. 

The  general  doctrine  that  no  one  is  authorized  to  contract 
for  a  corporation  before  it  is  formed,  applies  to  all  contracts 
with  and  by  promoters.  The  promoter  himself  is  liable  on 
these  pre-corporate  contracts,  unless  otherwise  expressly 
provided;  but  the  corporation  is  not.^^ 

Where  an  agent  commits  an  assault  in  the  discharge  of  his 
duty,  he  may  be  held  responsible. 

The  agent  in  charge  of  the  grounds  of  a  fishing  club  in 


**  Lewis  V.  Tilton,  64  Iowa  220. 

"Ray  V.  Powers,  134  Mass.  22. 

»  Conyngton's  "Corporate  Organization  and  Management"  (Edition  of  1917),  I  3a. 


900 


AGENCY 


Kentucky,  assailed  a  party  whom  he  accused  of  trespassing. 
The  party  assaulted  brought  suit  for  damages  against  the  agent 
and  the  club,  and  got  judgment  against  both." 

If  the  agent  got  into  a  quarrel  independently,  and  not  in 
the  discharge  of  his  duty,  his  principal  would  not  be  affected. 

Sometimes,  even  when  the  agent  acts  in  entire  good  faith, 
he  may  become  personally  liable  for  his  blunders.  For  in- 
stance: 

In  a  California  case,  Wilson,  a  broker,  sold  some  mining 
stock  for  a  customer.  The  stock  turned  out  to  have  been 
stolen  from  a  party  named  Swim,  who  brought  suit  against 
Wilson  for  the  value  of  the  stock.  The  court  held  that  the 
principal  who  employed  Wilson  to  sell  the  stock  had  no  title 
and  could  give  none  to  Wilson,  who  was  therefore  compelled 
to  pay  the  value  of  the  stock." 

Notes: 

I.     An  agent  is  liable  for  fraudulent  conduct. 

An  agent  is  liable  for  exceeding  his  authority. 

An  agent  is  liable  if  he  does  not  disclose  his  prin- 
cipal. 

An  agent  is  liable  if  he  represents  a  non-existent  or 
irresponsible  principal. 

An  agent  is  liable  for  wrongful  acts  within  the  scope 
of  his  emplo)mient. 

An  agent  may  be  liable  for  blunders. 


2. 
3» 


S 


Review  Questions 

1.  What  are  the  general  duties  of  an  agent  to  his  principal  ? 

2.  Can  C,  an  agent,  in  the  course  of  his  duties  make  any  profit 

for  himself? 

3.  When  may  an  agent  disobey  orders? 

4.  A  refuses  to  pay  B  commissions  for  sale  of  stock  on  the  ground 

Stewmrt,  las  Kf.  8. 


MNew  EUerslie  FisMiiff  Qub  ▼. 
*Swim  ▼.  Wilson.  13  Cal.  126. 


1 


THE  AGENT 


201 


10. 


II. 


that  B  received  commissions  from  the  parties  who  bought 
the  stock.  B  proved  that  A  knew  at  the  time  that  B  was  also 
being  paid  by  the  buyers.    Must  A  pay? 

5.  If  an  agent  has  not  been  paid  promptly,  can  he  collect  money 

due  his  principal  and  pay  himself? 

6.  May  a  lawyer  act  for  both  sides  in  a  controversy?    How  would 

it  be  in  negotiating  a  contract? 

7.  If  money  ot  the  principal  is  deposited  by  an  agent  in  his  own 

name,  can  the  agent's  creditors  take  it? 

8.  Is  an  agent  liable  for  money  of  his  principal  if  he  put  it  in  his 

own  cash  drawer  over  night  and  it  is  stolen?  If  he  puts 
it  in  a  bank  in  his  own  name  with  a  designation  "Agent's 
Name,  No.  2,"  to  distinguish  it  from  his  own  personal  account, 
and  the  bank  fails? 

9.  How  should  an  agent  execute  negotiable  paper  in  order  that 

it  may  be  binding  on  his  principal  and  not  upon  himself? 

What  do  you  understand  by  the  "apparent  authority"  of  an 
agent  ? 

A  was  a  cashier  of  the  Second  National  Bank.  B  was  a 
depositor  therein,  and  was  on  his  way  to  the  bank  one  day 
to  make  a  deposit.  When  about  half  way  to  the  bank  he  met 
the  cashier,  stopped  him,  told  him  that  he  was  about  to  make 
the  deposit,  and  asked  him  if  he  would  take  the  money,  there. 
The  cashier  agreed,  took  the  money,  made  the  proper  entry  in 
the  deposit  book,  and  handed  it  back  to  B.  A,  the  cashier,  how- 
ever, did  not  put  the  money  to  B's  credit,  but  kept  it  and  con- 
verted it  to  his  own  use,  and  B  sued  the  bank  for  the  amount. 
Is  he,  or  is  he  not,  entitled  to  recover?  Did  the  cashier  have 
any  apparent  or  real  authority  to  receive  the  deposit? 

When  may  the  members  of  an  unincorporated  club  be  held  for 
an  agent's  acts? 

13.  When  is  an  agent  personally  liable  to  third  persons? 

14.  What  is  the  agent's  liability  on  promissory  notes  signed? 

(a)  A,  by  B,  Agent 

(b)  B,  Agent  for  A 

(c)  B,  Agent  of  A 
B,  as  Agent 

X  Y  Company,  by  A.  President 
corporation  be  bound  by  contracts  made  before  it  was 


12. 


15. 


(d) 
(e) 
Can  a 


organized  ? 


THE  THIRD  PARTY 


203 


CHAPXER  XXV 
THE  THIRD  PARTY 

§  147.    Third  Party's  Relation  to  Agent 

Strictly  speaking,  the  third  party  has  no  relation  to  the 
agent  The  agent  represents  the  principal,  and  the  third  party 
is  dealing  only  with  the  principal.  When  the  agent  goes  be- 
yond his  powers,  then  he  makes  himself  responsible  and  may 
be  held;  the  same  is  true  when  he  represents  an  imdisclosed 
principal,  or  a  fictitious  principal.  The  third  party  should 
know  that  the  agent  with  whom  he  is  dealing  has  authority 
to  represent  his  principal,  and  how  far  this  authority  justifies 
the  action  of  the  agent. 

A  third  party  dealing  with  an  agent  in  excess  of  his  author- 
ity does  so  at  his  own  risk.  It  is  obvious  that  an  agent  cannot 
go  beyond  his  authority.  He  is  authorized  for  such  general 
or  special  purposes  as  the  principal  indicates,  and  further  than 
this  he  may  not  go. 

Where  an  agent  is  empowered  by  a  written  instrument  to 
do  certain  things,  it  is  very  plain  that  he  has  no  authority  to  do 
anything  more  than  what  is  specified;  but,  as  in  most  cases  of 
general  agency  the  agent  has  the  right  to  do  everything  inci- 
dental to  his  main  agency  business,  it  is  sometimes  not  easy 
to  tell  what  is  in  excess  of  his  authority  and  what  he  has  the 
right  to  do. 

Law  sold  goods  amounting  to  $320  to  Stokes.  The  sale 
was  made  by  Sheridan,  Law's  salesman.  The  sale  was  on  a 
credit  till  the  end  of  the  month.  Next  day  the  goods  were 
shipped  and  a  bill  was  enclosed  in  a  letter.    The  letter,  signed 


by  Law,  said,  "Please  remit  amount  direct  to  me.'*  The  bill 
had  on  its  face  in  red  ink,  "All  remittances  on  account,  or  in 
settlement  of  bills,  must  be  made  direct  to  the  principal." 
About  a  month  later  Stokes  paid  Sheridan  the  amount  of  the 
bill.  Sheridan  absconded  with  the  money ;  Law  brought  suit 
and  obtained  judgment.^ 

In  this  case  the  salesman  had  no  authority  to  collect.    The 
case  was  clear  for  the  plaintiff.  Law,  because  he  had  given 
notice  on  his  billhead  and  in  his  letter  of  his  limitation  on  the 
salesman's  authority.     Usually  there  would  be  more  trouble 
in  a  case  of  this  kind  because  the  proof  would  not  be  so  clear. 
The  agent  himself  would  be  liable  to  suit  by  the  third  party ; 
but  in  such  a  case  the  probability  would  be  that  the  agent  was 
judgment-proof  or  had  left  for  fresh  fields  and  pastures  new. 
In  each  case  the  third  party  should  know  for  his  own  safety 
just  what  power  the  agent  has  to  bind  his  principal,  and  that 
the  principal  is  responsible.     He  cannot  always  rely  on  the 
representations  of  the  agent  himself  as  to  the  extent  of  his 
authority.     It  is  the  third  party's  duty  to  make  due  inquiry 
into  the  matter,  as  in  case  of  a  dispute  later  the  burden  of 
proof  is  on  the  third  party  to  show  that  the  agent  had  authority 
for  the  particular  act. 

Notes* 

1.  It  is  unsafe  for  a  third  party  to  deal  with  an  agent 

without  sufficient  information  as  to  his  authority. 

2.  Care  should  be  taken  never  to  make  payments  to  an 

unauthorized  agent. 

3.  Where  salesmen  are  not  expected  to  collect  payment, 

customers  should  be  informed  of  the  fact. 

4.  In  dealing  with  an  agent,  it  is  necessary  to  know 

whom  he  represents  and  how  far  his  authority 
extends. 


» Law  V.  Stokes,  32  N.  J.  L.  249- 


AGENCY 


§  148.    Third  Party's  Relation  to  the  Principal 

The  third  party  is  really  dealing  with  the  principal,  and  the 
agent  is  merely  the'means  of  communication.  When  the  con- 
tract is  signed,  the  name  of  the  agent  is  attached  as  agent,  and 
the  principal,  not  the  agent,  is  bound.  Therefore  the  relation 
between  the  third  party  and  the  principal  is  the  same  as  be- 
tween any  other  parties  to  a  contract 

The  third  party  is  brought  into  the  contract  relation  as  a 
principal,  and  after  that  in  most  cases  the  agent  is  disregarded. 
The  principal  and  the  third  party  contract  with  each  other,  and, 
if  the  contract  has  not  been  executed,  each  has  the  right  to 
compel  the  performance  or  to  recover  damages  for  any  breach 
or  failure  in  performance.  In  any  dispute  in  regard  to  the 
contract,  the  resulting  suit  will  be  between  the  parties,  and  the 
agent  will  not  figure  save  as  a  witness  able  to  give  material 
evidence.  If  there  has  been  fraud  or  false  representation  on 
either  side,  the  fact  that  the  transaction  has  been  negotiated 
through  an  agent  does  not  affect  the  liabilities  or  the  remedies. 

Note: 

I.  When  dealing  through  an  agent,  the  third  party 
should  bear  in  mind  that  it  is  the  principal  with 
whom  he  contracts. 


I. 

2. 

3- 


Review  Questions 

How  can  a  person  dealing  with  an  agent  ascertain  his  authority? 

Why  is  it  hard  to  tell  what  the  agent  has  a  right  to  do  ? 
With  whom  does  the  third  party  really  contract?     If  any  suit 

arose,  who  would  be  the  parties? 
When  does  an  agent  make  himself  responsible  to  the  third  party  ? 


CHAPTER  XXVI 

TERMINATION  OF  AGENCY 

§  149.    Termination  by  Fulfilment 

The  agent's  authority  is  terminated  when  he  completes  the 
purposes  of  his  agency,  or  at  the  expiration  of  the  period  for 
which  he  was  engaged.  It  is  obvious  that  if  an  agent  has  been 
employed  to  purchase  a  farm  and  the  farm  has  been  purchased, 
the  agent's  authority  is  ended;  or  if  a  salesman  has  been  en- 
gaged for  a  year  to  sell  goods,  it  is  plain  that  the  agency,  unless 
renewed,  terminates  at  the  end  of  the  year.  Generally,  the  mle  . 
is  that  the  agency  ends  at  the  termination  of  the  period  for^^ 
which  the  agent  has  been  engaged,  or  the  completion  of  the 
undertaking  for  which  he  has  been  retained. 

The  principal  should  in  some  way  inform  those  who  have 
been  dealing  with  the  agent  that  the  agent  no  longer  has  au- 
thority to  act.  If  the  principal  fails  to  do  this,  and  the  agent 
continues  to  act,  the  principal  is  bound. 

Note: 

I.     An  agency  terminates  naturally  (a)  when  the  term 
ends,  or  (b)  when  the  undertaking  is  completed. 

§  150.    Termination  by  Either  Party 

The  contract  of  agency  may  be  terminated  at  any  time  by 
either  the  principal  or  the  agent.  It  is  obvious  that  the  con- 
tract between  principal  and  agent  (like  any  other  contract) 
may  terminate  at  any  time  by  agreement  of  the  parties.  It  is 
also  true  that  the  contract  (since  it  is  one  of  mutual  trust  and 
confidence)  may  be  terminated  at  will  by  either  one  of  the 
parties  against  the  consent  of  the  other  party,  except  in  the 

205 


y 


3o6 


AGENCY 


TERMINATION  OF  AGENCY 


207 


case  of  an  agent  having  an  interest  in  the  subject  matter;  in 
which  event  the  principal  cannot  terminate  the  relation  without 
the  agent's  consent.    (See  §  152.) 

If  the  principal  and  the  agent  contracted  for  a  certain 
period  of  time  or  for  a  certain  undertaking,  and  the  principal 
revoked  the  agent's  authority  without  good  cause,  the  former 
would  be  liable  to  suit  for  damages  by  the  agent  for  breach  of 
contract. 

Where  there  is  einpIo3rment  for  a  definite  period  of  time, 
express  or  implied,  and  the  agent  is  discharged  without  cause 
before  the  expiration  of  the  period,  the  principal  will  be 
liable  to  the  agent  as  in  the  breach  of  any  other  contract; 
in  such  cases  the  agent  may  elect  to  treat  the  contract  as 
rescinded  and  bring  an  action  to  recover  the  value  of  his 
services  and  money  expended.* 

The  agent  can  renounce  his  employment  at  any  time.  The 
courts  will  not  force  a  man  to  work  for  another  against  his 
will.  If,  however,  the  agent  has  agreed  to  act  for  a  certain 
time,  or  to  do  some  particular  thing,  he  may  be  liable  to  pay 
damages  if  he  breaks  off  before  the  expiration  of  the  period. 
Also,  if  he  tries  to  act  for  someone  else  in  the  same  line  of 
business  before  the  expiration  of  the  term,  it  is  probable  that 
the  principal  could  obtain  an  injunction  to  prevent  his  working 
for  a  competitor.  In  a  contract  of  agency,  there  is  often 
inserted  a  clause  providing  that  the  agent  shall  not  leave  the 
employ  of  the  principal  and  represent  anyone  else  in  the  same 
line  of  business  for  a  specified  period  of  time  after  his  con- 
tract terminates.    (See  §  138.) 

If  the  «;ubject  matter  of  an  agency  is  destroyed,  the  con- 
tract is  thereby  terminated.  A  case  of  this  kind  would  occur 
wheil  a  building  which  is  to  be  leased  by  an  agent  is  burned 
before  the  lease  is  effected. 


*GloTer  V.  Henderson,  120  Mo.  367. 


Notice  of  Revocation.  So  far  as  the  agent  is  concerned, 
the  act  of  revocation  becomes  operative  only  from  the  time 
he  has  actual  notice  thereof;  notice  to  third  parties  without 
notice  to  the  agent  will  not  effect  a  revocation  as  to  the  agent. 
Conversely,  a  notice  only  to  the  agent  is  not  effective  as  to 
third  parties.  The  acts  of  the  agent  in  dealing  with  third 
parties  without  notice  are  binding  on  the  principal.  Whatever 
is  sufficient  to  put  an  agent  or  third  party  on  inquiry  will 
serve  as  a  legal  notice  of  revocation. 

Notes: 

1.  Either  party  may  terminate  a  contract  of  agency 

at  any  time. 

2.  Either  party  breaking  a  contract  of  agency  for  a 

specified  period  or  undertaking  without  just  cause 
is  liable  in  damages. 

3.  An  agent  who  breaks  his  contract  may  be  prevented 

during  the  term  of  the  contract  from  taking  em- 
ployment with  a  business  competitor. 

§  151.    Termination  by  Disability 

An  agent's  authority  is  revoked  by  the  death,  insanity, 
or  bankruptcy  of  his  principal;  in  like  manner  the  relation 
is  destroyed  by  the  death  or  disability  of  the  agent.  This  is  a 
principle  of  universal  application.  When  a  man  dies,  all  con- 
tracts of  agency  cease  at  once;  all  powers  of  attorney,  and 
every  authority  to  anyone  else  to  act  for  him  are  terminated. 
If  in  ignorance  of  his  principal's  death  an  agent  did  business 
for  him,  the  business  would  be  void  and  of  no  effect. 

A  case  which  often  happens  is  that  of  a  person  of  ad- 
vanced years  who  gives  personal  property  to  an  agent  to 
deliver  to  someone  else  and  then  dies  before  the  property 
has  been  turned  over.  In  such  cases  the  courts  hold  that  the 
agency  is  revoked  by  the  death  of  the  principal,  and  the  gift 
cannot  take  effect. 


/y 


3o8 


AGENCY 


TERMINATION  OF  AGENCY 


209 


In  an  Illinois  case,  Mrs.  Trubey  had  her  lawyer  take  from 
a  bank  vault  a  metal  box  of  jewels  and  securities.  She  made 
parcels  of  these  and  designated  to  whom  each  parcel  was  to 
go.  Then  she  put  them  in  charge  of  her  lawyer,  but  set  no 
time  for  delivery.  He  receipted  for  them  and  placed  them 
in  another  vault.  Within  three  months  Mrs.  Trubey  died. 
The  matter  came  before  the  courts  for  adjudication.  It  went 
to  the  Supreme  Court  of  Illinois,  which  held  that  the  lawyer 
was  undoubtedly  Mrs.  Trubey's  agent  to  deliver  the  property; 
but  when  she  died  the  agency  was  revoked  by  that  fact,  and 
that,  as  the  property  had  not  been  delivered,  it  belonged  to 
her  estate  and  the  people  designated  had  no  claim  to  it.  The 
court  expressed  regret  that  it  was  not  possible  under  the  rules 
of  law  to  give  effect  to  what  Mrs.  Trubey  evidently  intended. 
It  would  seem  that  her  lawyer  was  much  at  fault* 

The  death  of  the  agent  also  terminates  the  relation.  When 
the  relation  of  principal  and  agent  is  broken  up  by  the  sick- 
ness or  other  disability  of  the  agent,  the  condition  will 
be  the  same  as  when  any  other  employee  finds  his  term  of 
employment  broken  by  disability.  In  all  such  cases  the  general 
rule  is  that  the  agent  or  the  employee  is  entitled  to  recover 
for  the  time  he  acted,  whatever  the  services  were  worth  to  the 
principal  or  the  employer. 

In  a  New  York  case  it  was  held  that  when  an  agent  is 
prevented  by  sickness  or  death  from  completing  his  contract, 
he  or  his  executor  is  entitled  to  the  vaJue  of  the  services 
actually  rendered.* 

Insanity  of  the  principal  has  the  same  effect  as  death.  If 
insane,  a  principal  can  no  longer  contract  himself,  and  neither 
can  he  contract  by  an  agent.  The  insanity  of  the  agent 
terrtiinates  the  relation  because  he  has  no  longer  the  capacity 
to  represent  his  principal 


■Tmbey  ▼.  Pemte,  240  111.  513. 
•  Wolfe  ▼.  Howes,  ao  N.  Y.  197. 


The  bankruptcy  of  the  principal,  and  in  some  cases  of 
the  agent,  would  destroy  the  relation.  In  the  case  of  bank- 
ruptcy, the  bankrupt  can  no  longer  continue  his  business,  but 
it  is  taken  over  by  the  court  or  the  trustees  in  bankruptcy; 
and  as  he  cannot  do  business  himself  he  cannot  do  it  through 
an  agent.  Insolvency  would  not  have  this  effect.  (See 
Chapter  LXXXI.) 

If  the  principal  parts  with  the  subject  matter,  that  ter- 
minates the  agency. 

Notes: 

1.  An  agent  can  act  only  for  a  party  who  can  act  for 

himself. 

2.  An  agent's  authority  ends  when  the  capacity  of  the 

principal  to  contract  ends. 

3.  An  agent's  incapacity  to  act  ends  the  relation. 


§  152.    An  Agent  with  an  Interest 

An  agency  coupled  with  an  interest  cannot  be  revoked  by 
the  principal  nor  will  his  death  or  insanity  revoke  it.  When 
the  agent  is  also  himself  interested  in  the  matter  to  he  ac- 
complished, it  places  him  in  a  di fferent  relation  to  the  prin- 
cTpal;  ana  tne  prmcipal  cannot  at  will  destroy  the  relation^ 
It,  loY  instance,  an  agent  is  employed  to  jell  a  horse,  and  the 
agreement  is  that  he  is  to  advance  the  principal  one-half  the 
price  and  pay  himself  when  he  sells  the  horse,  the  principal 
cannot  prevent  him  from  selling  the  horse.  The  agent  would 
have  an  TlTLeicsL  hi  LlrETnatter  himself,  and  could  go  on  and 
do  that  which  he  had  agreed  to  do. 

The  interest  that  causes  a  power  of  attorney  to  survive 
after  death  must  be  an  interest  in  the  subject  matter  of  the 
agency  and  not  in  that  which  is  produced  by  the  exercise  of 
the  power. 


y 


I 

1 


2IO 


AGENCY 


Note: 


An  agent  with  an  interest  in  the  property  itself  |  \    V 
cannot  be  discharged,  as  he  is  to  that  extent  a^ 


partner  with  the  principal. 


Review  Questions 

1.  How  may  the  contract  of  agency  terminate?    If  an  agent  con- 

tinues to  act  after  his  engagement  has  ended,  does  he  bind 
his  principal? 

2.  How  is  it  possible  to  prevent  an  agent's  going  to  work  for  a 

competitor  when  his  engagement  terminates?  If  the  principal 
revokes  the  authority  of  his  agent,  who  must  be  notified? 

3.  What  is  the  general   rule  as  to  the  death  or  insanity  of  the 

principal?  Why?  What  is  the  rule  as  to  compensation  when 
the  contract  is  terminated  by  the  death  or  disability  of  the 
agent  ? 

4.  What  is  the  effect  of  bankruptcy  ?    Of  insolvency  ?    What  is  the 

distinction  between  bankruptcy  and  insolvency? 

5.  A  borrowed  money  of  B,  giving  B  as  collateral  a  power  of 

attorney  to  collect  certain  rents.  A  died.  Was  B's  power  of 
attorney  terminated?  Is  the  tenant's  obligation  discharged 
by  payment  to  B? 

6.  What  is  the  effect  when  an  agent  has  an  interest  in  the  subject 

matter?    Why? 


PART  V 
NEGOTIABLE  INSTRUMENTS 


ft 


CHAPTER  XXVII 

FORM  AND  INTERPRETATION^ 

§  153.    The  Quality  of  Negotiability 

The  negotiable  instruments  in  ordinary  use  are:  (i) 
promissory  notes,  (2)  drafts  or  bills  of  exchange,  and  (3) 
checks.  In  all  the  states  that  have  adopted  the  Uniform  Bills 
of  Lading  Act,  bills  of  lading  are  made  negotiable  instruments. 
The  quality  of  negotiability  lies  in  the  fact  that  any  person, 
not  an  original  party,  who  takes  a  negotiable  instrument  in 
the  ordinary  course  of  business,  may  sue  on  it  when  due,  in 
his  own  name,  and  the  person  who  is  the  obligor  will  be 
compelled  to  pay  it.  Negotiable  instruments  are  also  called 
"commercial  paper." 

Any  ordinary  contract  may  be  assigned  by  executing  an 
assignment,  but  in  such  case  the  assignee  merely  steps  into 
the  shoes  of  the  person  who  assigned  it,  and  if  there  has  been 
any  reason,  as  between  the  parties,  why  it  should  not  be  paid, 
this  can  be  set  up  against  the  assignee,  if  he  brings  suit, 
exactly  as  if  he  were  the  original  party.  If  this  were  true 
of  a  note,  no  one  would  dare  to  discount  it,  for,  when  the 
time  of  payment  came,  any  reason  for  non-payment  that  might 
exist  between  the  original  parties  could  be  used  to  destroy 
the  whole  value  of  the  note.  Hence,  for  the  convenience  of 
business,  the  law  of  negotiable  instruments  has  grown  up,  to 
protect  the  man  who  takes  them  "in  due  course  of  business." 

"In  due  course  of  business"  means  taken  before  its  date 
for  payment,  for  a  valuable  consideration  and  without  knowl- 
edge of  anything  that  would  affect  the  title.    The  law  says: 

»For  forms  of  negotiable  instruments,  see  Chapter  CIII,  Forms  34-43. 

213 


214  NEGOTIABLE  INSTRUMENTS 

A  holder  in  due  course  holds  the  instrument  free  from 
defect  of  title  of  prior  parties,  and  free  from  any  defenses 
available  to  prior  parties  among  themselves  and  may  enforce 
payment  of  the  instrument  for  the  full  amount  thereof 
against  all  parties  liable  thereon. 


Non-NegoHahle  Contracts.  A  simple  agreement  or  promise 
to  pay  a  sum  of  money  could  not  be  enforced  unless  there 
was  a  valid  consideration  for  the  promise,  and  an  assignee 
would  have  no  more  rights  than  the  original  holder.  That  is, 
if  suit  were  brought  on  such  an  agreement,  and  the  maker 
could  prove  that  no  consideration  had  been  given,  he  would 
not  be  made  to  pay.  The  same  rule  would  hold  as  between 
the  original  parties  to  a  note,  and  the  defense  of  no  considera- 
tion would  prevent  collection,  but  if  the  note  or  other 
negotiable  paper  had  been  negotiated,  that  is,  if  it  had  passed 
in  the  course  of  business  into  the  hands  of  an  innocent  holder 
for  value,  the  matter  of  consideration  would  not  figure,  and 
the  full  amount  would  have  to  be  paid. 

Notes,  drafts,  and  checks  are  used  so  extensively  that 
the  laws  governing  their  transfer  are  of  great  importance. 
WTien  the  subject  of  imiform  laws  was  brought  up,  the  law 
of  negotiable  instruments  was  the  first  to  be  reformed  and 
the  one  most  widely  adopted.  The  Uniform  Negotiable  In- 
fitniments  Law  as  devised  by  the  commissioners  having  the 
work  in  hand  has  at  the  present  time  been  adopted  by  every 
state  and  territory  except  Georgia  and  Porto  Rico. 

In  discussing  this  subject,  the  Uniform  Negotiable  In- 
struments Law  has  been  followed  as  closely  as  possible,  and 
the  quotations  are  from  the  text  of  the  law. 

.  The  following  are  the  requirements  for  negotiable  instru- 
ments as  laid  down  in  the  law  itself : 


§  I.— An  instrument  to  be  negotiable  must  conform  to  the 
following  requirements : 


FORM  AND  INTERPRETATION  21$ 

•        1.    It  must  be  in  writing  and  signed  by  the  maker  or 
drawer. 

2.  Must  contain  an  unconditional  promise  or  order  to 
pay  a  sum  certain  in  money. 

3.  Must  be  payable  on  demand,  or  at  a  fixed  or  determin- 
able future  time. 

4.  Must  be  payable  to  order  or  to  bearer;  and 

5.  Where  the  instrument  is  addressed  to  a  drawee,  he 
must  be  named  or  otherwise  indicated  therein  with  reasonable 
certainty. 

§  154.    Signature 

The  signer  of  an  instrument  is  liable,  and  anyone  signing 
a  trade-name  or  assumed  name  will  be  liable  personally.  A 
duly  authorized  agent  can  sign  for  his  principal,  and  if  he  is 
duly  authorized  and  signs  as  agent  or  in  a  representative 
capacity,  he  will  not  be  personally  liable.  If,  however,  he 
signs  as  agent  without  disclosing  his  principal,  he  will  be 
personally  liable. 

The  indorsement  of  a  corporation  or  an  infant  passes  the 
property  in  the  instrument,  though  the  corporation  or  infant 
may  not  be  liable.  A  note  signea  by  a  minor  cannot  be 
collected. 

A  forged  signature  is  absolutely  void  and  passes  no  right 
or  title. 


$  155.    Unconditional  Promise 

The  Uniform  Law  allows  two  variations  of  the  require- 
ment of  an  unconditional  promise  or  order  to  pay. 

§  3. — ^An  unqualified  order  or  promise  to  pay  is  uncondi- 
tional within  the  meaning  of  this  act,  though  coupled  with: 

1.  An  indication  of  a  particular  fund  out  of  which  reim- 
bursement is  to  be  made,  or  a  particular  account  to  be  debited 
with  the  amount;  or 

2.  A  statement  of  the  transaction  which  gives  rise  to  the 
instrument. 


ai6  NEGOTIABLE  INSTRUMENTS 

But  an  order  or  promise  to  pay  out  of  a  particular  fund  is 
not  unconditional. 

§  156.    Certainty  as  to  Sum 

It  is  to  be  noted  that  the  law  allows  certain  variations  as 
to  the  certainty  of  the  sum: 

§  2.— The  sum  payable  is  a  sum  certain  within  the  mean- 
ing of  this  act.  although  it  is  to  be  paid: 

1.  With  interest;  or 

2.  By  stated  instalments;  or 

3.  By  stated  instalments,  with  a  provision  that  upon  de- 
fault in  payment  of  any  instalment  or  of  interest,  the  whole 
shall  become  due;  or 

4.  With  exchange,  whether  at  a  fixed  rate  or  at  the 
current  rate;  or 

5.  With  costs  of  collection  or  an  attorney's  fee,  in  case 
payment  shall  not  be  made  at  maturity. 

§  157.    Payable  on  Demand 

§  7- — ^An  instrument  is  payable  on  demand : 

1.  Where  it  is  expressed  to  be  payable  on  demand,  or  at 
sight,  or  on  presentation ;  or 

2.  In  which  no  time  for  payment  is  expressed. 
Where  an  instrument  is  issued,  accepted  or  indorsed  when 

overdue,  it  is,  as  regards  the  person  so  issuing,  accepting  or 
indorsing  it,  payable  on  demand. 

§  158.    Certain  Future  Time 

The  law  clearly  expresses  that  the  time  must  be  certaia 

§4.— An  instrument  is  payable  at  a  determinable  future 
time,  within  the  meaning  of  this  act,  which  is  expressed  to 
be  payable: 

1.  At  a  fixed  period  after  date  or  sight;  or 

2.  On  or  before  a  fixed  or  determinable  future  time 
specified  therein;  or 

3.  On  or  at  a  fixed  period  after  the  occurrence  of  a 
specified  event,  which  is  certain  to  happen,  though  the  time 
of  happening  be  uncertain. 


FORM  AND  INTERPRETATION  217 

An  instrument  payable  upon  a  contingency  is  not  negoti- 
able, and  the  happening  of  the  event  does  not  cure  the  defect. 

§  159.    Payable  to  Order 

♦■  • 

§  8. — The  instrument  is  payable  to  order  where  it  is 
drawn  payable  to  the  order  of  a  specified  person  or  to  him 
or  his  order.    It  may  be  drawn  payable  to  the  order  of: 

1.  A  payee  who  is  not  maker,  drawer  or  drawee;  or 

2.  The  drawer  or  maker;  or 

3.  The  drawee;  or 

4.  Two  or  more  payees  jointly;  or 

5.  One  or  some  of  several  payees;  or 

6.  The  holder  of  an  office  for  the  time  being. 
Where  the  instrument  is  payable  to  order  the  payee  must 

be  named  or  otherwise  indicated  therein  with  reasonable  cer- 
tainty. 

§160.    Payable  to  Bearer 

§  9. — The  instrument  is  payable  to  bearer : 

1.  When  it  is  expressed  to  be  so  payable;  or 

2.  When  it  is  payable  to  a  person  named  therein  or 
bearer;  or 

3.  When  it  is  payable  to  the  order  of  a  fictitious  or  non- 
existing  person,  and  such  fact  was  known  to  the  person  mak- 
ing it  so  payable;  or 

4.  When  the  name  of  the  payee  does  not  purport  to  be 
the  name  of  any  person ;  or 

5.  When  the  only  or  last  indorsement  is  an  indorsement 
in  blank. 

§  161.    The  Date 

The  law  pro\^ides  that  the  date  on  the  face  of  the  instru- 
ment is  presumed  to  be  the  true  date,  and  that  it  may  be  ante- 
dated or  post-dated,  provided  it  is  not  done  for  a  fraudulent 
purpose.  It  is  also  provided  that  if  a  date  is  left  blank,  any 
holder  may  insert  the  true  date.  If  an  instrument  is  issued 
with  any  material  particular  left  out,  the  holder  may  fill  in 
the  blanks. 


2l8 


NEGOTIABLE  INSTRUMENTS 


FORM  AND  INTERPRETATION 


219 


m 


A  ncte  dated  on  a  legal  holiday  other  than  Sunday  is  valid. 
In  New  Jersey  a  contract,  bill.  note,  or  check  drawn  or  made 
accepted  or  delivered,  on  Sunday  is  void.  In  Massachusetts 
a  note  or  check  made  on  Sunday  is  void  as  between  the 
onginal  parties.  In  Connecticut,  a  defense  to  an  action  on 
a  note  made  on  Sunday  wiO  be  good  if  the  consideration  is 
restored.  Both  Massachusetts  and  Connecticut  protect  the 
bona  fide  holder  of  a  note  made,  accepted  or  drawn  on  Sun- 
day.   In  New  York  a  note  dated  and  delivered  on  Sunday 

§  162.    Consideratioii 

AM  negotiaMe  paper  is  presumed  to  have  been  given  for 
a  valuable  consideration,  and  everyone  whose  signature  an- 
pears  on  it  is  presumed  to  have  become  a  party  for  a  valuable 
considerauon.  Any  consideration  that  would  support  an  or- 
dinaiy  contract  will  be  sufficient.  An  existing  debTwould  be 
a  good  consideration  for  a  note  or  draft  in  settlement 

.^^^n^J  ^^"T  ""^  ^^^"^i^^^^^n  is  not  a  good  defense 
against  a  holder  in  due  course  for  value. 

If  a  gambling  debt  has  been  paid  widi  a  negotiable  instru- 
ment,  the  maker  can  generaUy  set  up  the  defense  of  iDe^alitv 
only  against  the  original  party.  In  a  few  states,  howVver 
gambling  contracts  are  absolutely  void,  and  there  the  maker 
of  such  an  mstrument  cannot  be  held,  but  the  indorscr  can 
inasmuch  as  an  indorser  warrants  the  legality  of  the  instn/ 
ment 

Anymt  having  a  Hen  on  a  negotiable  instrument,  is  a 
holder  for  value  to  the  extent  of  his  lien. 

§163.    Delivery 

A  negotiable  instrument  is  incomplete  until  delivery  If 
an  incomplete  instrument  is  completed  and  delivered  without 
authonty  of  the  maker  or  drawer,  it  wiU  not  be  valid  unless 


it  comes  in  due  course  to  an  innocent  holder  for  value,  in  which 
case  it  will  be  presumed  conclusively  to  be  good. 

§  164.    Rules  of  Construction 

§  10. — The  instrument  need  not  follow  the  language  of 
this  act,  but  any  terms  are  sufficient  which  clearly  indicate  an 
intention  to  conform  to  the  requirements  hereof. 

§  i7,_vv^here  the  language  of  the  instrument  is  ambigu- 
ous, or  there  are  omissions  therein,  the  following  rules  of 
construction  apply: 

1.  Where  the  sum  payable  is  expressed  in  words  and  also 
in  figures  and  there  is  a  discrepancy  between  the  two,  the 
sum  denoted  by  the  words  is  the  sum  payable;  but  if  the 
words  are  ambiguous  or  uncertain,  references  may  be  had  to 
the  figures  to  fix  the  amount ; 

2.  Where  the  instrument  provides  for  the  payment  of  in- 
terest, without  specifying  the  date  from  which  interest  is  to 
run,  the  interest  runs  from  the  date  of  the  instrument,  and 
if  the  instrument  is  undated,  from  the  issue  thereof ; 

3.  Where  the  instrument  is  not  dated,  it  will  be  consid- 
ered to  be  dated  as  of  the  time  it  was  issued ; 

4.  Where  there  is  a  conflict  between  the  written  and 
printed  provisions  of  the  instrument,  the  written  provisions 
prevail ; 

5.  Where  the  instrument  is  so  ambiguous  that  there  is 
doubt  whether  it  is  a  bill  or  note,  the  holder  may  treat  it  as 
either  at  his  election; 

6.  Where  a  signature  is  so  placed  upon  the  instrument 
that  it  is  not  clear  in  what  capacity  the  person  making  the 
same  intended  to  sign,  he  is  to  be  deemed  an  indorser ; 

7.  Where  an  instrument  containing  the  words  "I  promise 
to  pay"  is  signed  by  two  or  more  persons,  they  are  deemed  to 
be  jointly  and  severally  liable  thereon. 

§165.    Allowable  Provisions 

1 5. — An  instrument  which  contains  an  order  or  promise 
to  do  any  act  in  addition  to  the  payment  of  money  is  not 
negotiable.  But  the  negotiable  character  of  an  instrument 
otherwise  negotiable  is  not  affected  by  a  provision  which : 


220  NEGOTIABLE  INSTRUMENTS 

1.  Authorizes  the  sale  of  collateral  securities  in  case  the 
instrument  be  not  paid  at  maturity;  or 

2.  Authorizes  a  confession  of  judgment  if  the  instrument 
be  not  paid  at  maturity;  or 

3.  Waives  the  benefit  of  any  law  intended  for  the  advan- 
tage or  protection  of  the  obligor;  or 

4.  Gives  the  holder  an  election  to  require  something  to 
be  done  in  lieu  of  payment  of  money. 

But  nothing  in  this  section  shall  validate  any  provision 
or  stipulation  otherwise  illegal. 

§  166.    Non-Essentials 

§  6. — The  validity  and  negotiable  character  of  an  instru- 
ment are  not  affected  by  the  fact  that: 

1.  It  is  not  dated;  or 

2.  Does  not  specify  the  value  given,  or  that  any  value 
has  been  given  therefor;  or 

3.  Does  not  specify  the  place  where  it  is  drawn  or  the 
place  where  it  is  payable ;  or 

4.  Bears  a  seal ;  or 

5.  Designates  a  particular  kind  of  current  money  in 
which  payment  is  to  be  made. 

But  nothing  in  this  section  shall  alter  or  repeal  any  statute 
requiring  in  certain  cases  the  nature  of  the  consideration  to 
be  stated  in  the  instrument. 


I. 


3- 
4. 

5. 


Review  Questions 

Give  a  succinct  but  clear  idea  of  commercial  paper.  If  the 
assignee  of  an  ordinary  contract  has  to  bring  suit  to  enforce 
it,  what  may  happen?  What  is  meant  by  "due  course  of 
business"  ? 

What   are   the   five  requirements    for   negotiable   instruments? 

What  are  the  usual  negotiable  words? 
How  should  an  agent  sign  a  note? 

What  effect  has  a  minor's  note?    A  minor's  indorsement? 
Would  a  note  payable  from  "rents  for  March,  1919,  from  the 

maker's  apartment  house.  No.  154  Clinton  Avenue,  Baltimore, 

Maryland,"  be  negotiable? 


FORM  AND  INTERPRETATION 


221 


10. 


6.  Is  a  note  payable  in  instalments  good?     Is  a  note  good  that 

adds  costs  of  collection? 

7.  Would  a  note  payable  ninety  days  after  the  death  of  the  maker 

be  negotiable?     What  if  it  were  payable  ninety  days  after 
the  payee  came  of  age? 

8.  Is  a  note  with  no  time  expressed  good? 

g.    Is  a  note  or  a  check  invalidated  if  dated  on  a  legal  holiday? 

Dated  on  Sunday?    Explain  fully. 
A  affixes  his  signature  to  a  blank  paper  and  delivers  it  to  B 

for  the  purpose  of  converting  it  into  a  negotiable  note.     B 

writes  a  larger  amount  and  a  shorter  time  than  agreed  on. 

Is  A  liable  to  a  holder  in  due  course  without  notice? 
C  pays  a  note  that  apparently  bears  his  signature  as  maker. 

Later  he  finds  that  the  signature  was  forged.    May  he  recover 

the  money  paid?     State  the  principle. 
A  bank  discounts  a  note  having  a   genuine   indorsement,  but 

forged  signature  of  maker.    Who  bears  loss? 

13.  If  in  a  note  there  is  a  conflict  between  words  and  figures  as  to 

sum  payable,  what  prevails?     As  between  printed  words  and 
written  words  which  prevails? 

14.  Is  it  necessary  that  a  note  or  a  bill  should  contain  the  words 

"value  received" ?    That  it  should  be  dated? 

15.  What  provision  can  be  made  in  a  note  as  to  the  sale  of  collateral 

securities?    What  are  "collateral  securities"? 


II. 


12. 


CHAPTER  XXVIII 

NEGOTIATION^ 

§  167.    Method  of  Negotiation 

§  30. — An  instrument  is  negotiated  when  it  is  transferred 
from  one  person  to  another  in  such  manner  as  to  constitute 
the  transferee  the  holder  thereof.  If  payable  to  bearer  it 
is  negotiated  by  delivery ;  if  payable  to  order  it  is  negotiated 
by  the  indorsement  of  the  holder  completed  by  delivery. 

§  31. — The  indorsement  must  be  written  on  the  instrument 
itself  or  upon  a  paper  attached  thereto.  The^  signature  of 
the  indorser,  without  additional  words,  is  a  suflBcient  in- 
dorsement. 

§32. — ^The  indorsement  must  be  an  indorsement  of  the 
entire  instrument.  An  indorsement,  which  purports  to  trans- 
fer to  the  indorsee  a  part  only  of  the  amount  payable,  or 
which  purports  to  transfer  the  instrument  to  two  or  more  in- 
dorsees severally,  does  not  operate  as  a  negotiation  of  the  in- 
strument But  where  the  instrument  has  been  paid  in  part, 
it  may  be  indorsed  as  to  the  residue. 

§  168.    The  Indorser's  Contract 

The  contract  of  any  one  who  indorses  negotiable  instru- 
ments is  that  he  warrants  to  all  subsequent  holders  in  due 
course : 

1.  That  the  instrument  is  genuine. 

2.  That  he  has  good  title  to  it. 

•   3.     That  all  prior  parties  had  capacity  to  contract. 
4.     That  the  instrument  is,  at  tiie  time  he  indorses  it, 
valid  and  subsisting. 


NEGOTIATION 


223 


*  For  f  oniif  of  indorsement,  see  Chapter  CIII,  Forms  $6,  44. 

323 


He  also  warrants  that  on  presentment  when  due  it  will 
be  accepted  or  paid  or  both  according  to  its  tenor,  and  that 
if  it  be  dishonored  and  the  necessary  protest  and  notice  be 
given,  he  will  pay  the  amount  thereof  to  the  holder  or  to  any 
subsequent  indorser  who  may  have  to  pay  it. 

§  169.    Blank  or  Special  Indorsement 

§  33. — An  indorsement  may  be  either  special  or  in  blank ; 
and  it  may  also  be  either  restrictive  or  qualified,  or  con- 
ditional. 

§  34. — A  special  indorsement  specifies  the  person  to  whom, 
or  to  whose  order  the  instrument  is  to  be  payable;  and  the 
indorsement  of  such  indorsee  is  necessary  to  the  further 
negotiation  of  the  instrument.  An  indorsement  in  blank 
specifies  no  indorsee,  and  an  instrument  so  indorsed  is  pay- 
able to  bearer,  and  may  be  negotiated  by  delivery. 

§35. — The  holder  may  convert  a  blank  indorsement  into 
a  special  indorsement  by  writing  over  the  signature  of  the 
indorser  in  blank  any  contract  consistent  with  the  character 
of  the  indorsement. 

§  170.    Restrictive  Indorsement 

^36. — An  indorsement  is  restrictive,  which  either: 

1.  Prohibits  the  further  negotiation  of  the  instrument;  or 

2.  Constitutes  the  indorsee  the  agent  of  the  indorser ;  or 

3.  Vests  the  title  in  the  indorsee  in  trust  for  or  to  the 
use  of  some  other  person. 

But  the  mere  absence  of  words  implying  power  to  negoti- 
ate does  not  make  an  indorsement  restrictive. 

§  37. — A  restrictive  indorsement  confers  upon  the  indorsee 

the  right: 

1.  To  receive  payment  of  the  instrument; 

2.  To  bring  any  action  thereon  that  the  indorser  could 

bring; 

3.  To  transfer  his  rights  as  such  indorsee,  where  the 
form  of  the  indorsement  authorizes  him  to  do  so. 

But  all  subsequent  indorsees  acquire  only  the  title  of  the 
first  indorsee  under  the  restrictive  indorsement. 


H 


224 


NEGOTIABLE  INSTRUMENTS 


I' 


§  171*    Qualified  Indorsement 

§38.— A  qualified  indorsement  constitutes  the  indorser  a 
mere  assignor  of  the  title  to  the  instrument.  It  may  be  made 
by  adding  to  the  indorser's  signature  the  words  "without  re- 
course" or  any  words  of  similar  import.  Such  an  indorse- 
ment does  not  impair  the  negotiable  character  of  the  instru- 
ment. 

§  172.    Conditional  Indorsement 

The  payee  is  not  concerned  about  a  conditional  indorse- 
ment. Such  an  indorsement  affects  the  rights  of  only  those 
who  take  the  instrument  after  the  indorsement.  A  conditional 
indorsement  imposes  some  condition  on  payment,  as  "Pay  to 
Henry  Alford  upon  delivery  of  motor  truck,  on  March  I, 
1920.  Mark  Anderson." 

In  such  a  case,  the  payee  may  take  no  notice  of  the  condi- 
tion and  may  pay  any  lawful  holder  of  the  note  whether  the 
condition  has  been  fulfilled  or  not.  But  any  holder  of  such 
a  note  would  hold  it.  or  any  amount  paid  him  upon  it,  subject 
to  the  rights  of  the  conditional  indorser. 

§  173.    Effect  of  Indorsement 

* 

An  instrument  payable  to  bearer  may  be  indorsed  specially 
to  some  particular  person  and  after  that  may  again  be  passed 
on  by  delivery. 

§41.— Where  an  instrument  is  payable  to  the  order  of 
two  or  more  payees  or  indorsees  who  are  not  partners,  all 
must  indorse,  unless  the  one  indorsing  has  authority  to  in- 
dorse for  the  others. 

§42.— Where  an  instrument  is  drawn  or  indorsed  to  a 
person  as  "cashier"  or  other  fiscal  officer  of  a  bank  or  cor- 
*  poration,  it  is  deemed  prima  facie  to  be  payable  to  the  bank 
or  corporation  of  which  he  is  such  officer;  and  may  be 
negotiated  by  either  the  indorsement  of  the  bank  or  corpora- 
tion or  the  indorsement  of  the  officer. 


NEGOTIATION 

§  43- — Where  the  name  of  a  payee  or  indorsee  is  wrongly 
designated  or  misspelled,  he  may  indorse  the  instrument  as 
therein  described,  adding,  if  he  think  fit,  his  proper  signature. 

§  44. — Where  any  person  is  under  obligation  to  indorse  in 
a  representative  capacity,  he  may  indorse  in  such  terms  as 
to  negative  personal  liability. 

§  45. — Except  where  an  indorsement  bears  date  after  the 
maturity  of  the  instrument,  every  negotiation  is  deemed 
prima  facie  to  have  been  effected  before  the  instrument  was 
overdue. 

§46. — Except  where  the  contrary  appears  every  indorse- 
ment is  presumed  prima  facie  to  have  been  made  at  the  place 
where  the  instrument  is  dated. 


225 


Review  Questions 

1.  What  is  the  difference  between  assigning  a  simple  contract,  and 

negotiating  a  note  or  other  commercial  paper?  What  is  the 
form? 

2.  What  is  a  contract  of  indorsement?    What  obligation  is  assumed 

by  the  indorser? 

3.  If  an  instrument  payable  to  bearer  is  indorsed  specially  to  some 

particular  person  and  after  that  is  passed  on  by  delivery,  can 
the  holder  by  delivery  collect  from  the  special  indorser  or  the 
special  indorsee? 

4.  Give  pro   forma  illustrations  of  the  following  indorsements  of 

promissory  notes  and  show  the  purpose  and  effect  of  each 
indorsement:  (a)  in  full,  (b)  conditional,  (c)  restrictive,  (d) 
qualified. 

5.  What  is  the  procedure  where  the  name  of  a  payee  or  indorsee 

has  been  misspelled  or  his  initials  are  not  given  correctly? 


I! 


I      i* 


CHAPTER  XXIX 

RIGHTS  OF  HOLDER 
§  174.    Holder  in  Due  Course 

The  Uniform  Negotiable  Instruments  Law  uses  the  phrase 
"a  holder  in  due  course"  to  express  the  idea  of  an  innocent 
holder  for  value,  that  is,  one  who  has  taken  the  instrument 
without  knowledge  of  anything  unusual  in  connection  with 
it  and  who  has  given  a  valuable  consideration  for  his  tiUe. 
Such  a  holder  of  a  negotiable  instrument  may  sue  on  it  in 
his  own  name. 

§  52— A  holder  in  due  course  is  a  holder  who  has  taken 
the  instrument  under  the  following  conditions  : 

1.  That  it  is  complete  and  regular  upon  its  face; 

2.  That  he  became  the  holder  of  it  before  it  was  over- 
due, and  without  notice  that  it  had  been  previously  dis- 
honored, if  such  were  the  fact; 

3.  That  he  took  it  in  good  faith  and  for  value; 

4.  That  at  the  time  it  was  negotiated  to  him  he  had  no 
notice  of  any  infirmity  in  the  instrument  or  defect  in  the  title 
of  the  person  negotiating  it. 

§53.— Where  an  instrument  payable  on  demand  is  ne- 
gotiated an  unreasonable  length  of  time  after  its  issue,  the 
holder  is  not  deemed  a  holder  in  due  course. 

554.— Where  the  transferee  receives  notice  of  any  in- 
firmity in  the  instrument  or  defect  in  the  title  of  the  person 
negotiating  the  same  before  he  has  paid  the  full  amount 
agreed  to  be  paid  therefor,  he  will  be  deemed  a  holder  in 
due  course  only  to  the  extent  of  the  amount  theretofore  paid 
hy  him. 

326 


RIGHTS  OF  HOLDER  227 

1 175.    Defects  of  Title 

§  55. — The  title  of  a  person  who  negotiates  an  instrument 
is  defective  within  the  meaning  of  this  act  when  he  obtained 
the  instrument,  or  any  signature  thereto,  by  fraud,  duress, 
or  force  and  fear,  or  other  unlawful  means,  or  for  an  illegal 
consideration,  or  when  he  negotiates  it  in  breach  of  faith,  or 
under  such  circumstances  as  amount  to  a  fraud. 

§  56. — ^To  constitute  notice  of  an  infirmity  in  the  instru- 
ment or  defect  in  the  title  of  the  person  negotiating  the  same, 
the  person  to  whom  it  is  negotiated  must  have  had  actual 
knowledge  of  the  infirmity  or  defect,  or  knowledge  of  such 
facts  that  his  action  in  taking  the  instrument  amounted  to 
bad  faith. 

§  176.    The  Rights  of  a  Holder  in  Due  Course 

A  holder  in  due  course  of  a  negotiable  instrument  is  in  a 
strong  position.  He  has  a  good  claim  against  any  of  the 
prior  parties  to  the  instrument  regardless  of  any  claim  they 
may  have  for  fraud,  duress,  lack  of  consideration,  and,  with 
a  few  exceptions,  illegality.  Of  course,  if  the  holder  knew 
of  any  of  these  defects  before  taking  the  instrument,  he  would- 
not  be  a  holder  in  due  course.  If  he  occupies  the  position  of 
,  holder  in  due  course,  he  may  take  any  negotiable  instnunent 
without  inquiry  and  without  any  fear  that  in  the  event  of 
having  to  bring  suit  he  may  meet  with  any  of  the  defenses 
named. 

1 57. — ^A  holder  in  due  course  holds  the  instrument  free 
from  any  defect  of  title  of  prior  parties  and  free  from  de- 
fenses available  to  prior  parties  among  themselves,  and  may 
enforce  payment  of  the  instrument  for  the  full  amount  there- 
of against  all  parties  liable  thereon. 

§  177.    Effect  of  Irregular  Transfer 

If  a  holder  of  negotiable  paper  not  "a  holder  in  due 
course"  brings  suit  to  collect,  he  must  face  all  the  defenses 


f 


'111 


|ill 


228 


NEGOTIABLE  INSTRUMENTS 


tibat  can  be  brought  up  in  a  suit  between  the  original  parties. 
There  may  have  been  fraud  as  between  the  original  parties 
or  other  cause  why  the  note  should  not  be  paid.  If  it  has 
come  into  the  hands  of  an  innocent  holder,  he  can  collect 
notwithstanding,  but  if  the  holder  did  not  take  the  instrument 
m  due  course,  any  of  the  defenses  existing  between  the  original 
parties  may  be  used  against  him. 

§97-— In  the  hands  of  any  holder  other  than  a  holder  in 
due  course,  a  negotiable  instrument  is  subject  to  the  same 
defenses  as  if  it  were  non-negotiable.  But  a  holder  who 
derives  his  title  through  a  holder  in  due  course,  and  who  is 
not  himself  a  party  to  any  fraud  or  illegality  affecting  the 
instrument,  has  all  the  rights  of  such  former  holder  in  respect 
of  all  parties  prior  to  the  latter. 

If  negotiable  instruments  payable  to  bearer  are  lost,  the 
finder  does  not  have  good  title,  but  if  he  manages  to  transfer 
them  to  an  innocent  holder  for  value,  such  holder  has  a  good 
title.  This  rule  does  not  apply  to  certificates  of  stock  or  other 
instruments  that  are  only  quasi-negotiable. 


Review  Questions 


1. 


What  IS  a  "holder  in  due  course"?  If  a  person  takes  an  undated 
note,  IS  he  a  holder  in  due  course?  If  a  note  is  overdue,  will 
an  indorsee  be  a  holder  in  due  course?  If  the  indorsee  pays 
only  half  the  face  of  the  note,  will  he  be  a  holder  in  due 
course  ? 

2.  Distinguish  the  position  of  a  bona  fide  holder  of  a  negotiable 

instrument  and  an  assignee  of  an  assignable  obligation  in  the 
event  of  their  suing  for  their  respective  claims. 

3.  An  indorsee  who  has  notice  of  illegality  of  note  indorses  it  to  a 

bona  fide  holder  for  value,  and  takes  up  the  note  at  maturity 
Is  he  entitled  to  sue  maker? 
4-    If  A  lost  bearer  bonds  and  certificates  of  stock  indorsed  in  blank, 
and  C  took  them  from  the  finder  in  good  faith,  paying  value' 
what  interest  would  C  have? 


CHAPTER  XXX 

LIABILITY  OF  PARTIES 

§  178.    Liability  of  Maker 

The  maker  of  a  promissory  note  engages  to  pay  the  note 
he  issues  according  to  its  tenor  and  effect,  and  he  is  primarily 
liable.  Should  it  be  paid  by  one  of  the  indorsers,  the  maker 
will  later  have  to  reimburse  him  for  what  he  has  paid.  The 
maker  is  liable  even  if  the  note  is  not  presented  to  him  when 
due.  He  remains  liable  upon  it  until  it  is  outlawed  by  the 
Statute  of  Limitations.  He  is  not  liable  on  a  forged  instru- 
ment or  on  an  incomplete  instrument  lost  or  stolen  and  filled 
out  by  the  finder  or  thief. 

§  34. — ^Where  an  incomplete  instrument  has  not  been  de- 
livered it  will  not,  if  completed  and  negotiated  without 
authority,  be  a  valid  contract  in  the  hands  of  any  holder, 
as  against  any  person  whose  signature  was  placed  thereon 
before  delivery. 

§  42. — ^Where  a  signature  is  forged  or  made  without  au- 
thority of  the  person  whose  signature  it  purports  to  be,  it  is 
wholly  inoperative,  and  no  right  to  retain  the  instrument, 
and  to  give  a  discharge  therefor,  or  to  enforce  payment 
thereof  against  any  party  thereto,  can  be  acquired  through 
or  under  such  signature,  unless  the  party  against  whom  it  is 
sought  to  enforce  such  right  is  precluded  from  setting  up  the 
forgery  or  want  of  authority. 

§  179.    Liability  of  Indorser 

When  any  person  other  than  maker,  drawer,  or  acceptor 
places  his  signature  upon  an  instrument  he  is  deemed  to  be 
an  indorser. 

229 


<i     '  i> 


m 


230 


NEGOTIABLE  INSTRUMENTS 


l« 


§64.— Where  a  person,  not  otherwise  a  party  to  an  in- 
strument, places  thereon  his  signature  in  blank  before  de- 
hvery,  he  is  liable  as  indorser  in  accordance  with  the  foUow- 
ing  rules  : 

1.  If  the  instrument  is  payable  to  the  order  of  a  third 
person,  he  is  liable  to  the  payee  and  to  all  subsequent  parties. 

2.  If  the  instrument  is  payable  to  the  order  of  the  maker 
or  drawer,  or  is  payable  to  bearer,  he  is  liable  to  all  parties 
subsequent  to  the  maker  or  drawer. 

3.  If  he  signs  for  the  accommodation  of  the  payee  he  is 
liable  to  all  parties  subsequent  to  the  payee. 

§  65.— Every  person  negotiating  an  instrument  by  delivery 
or  by  a  qualified  indorsement,  warrants : 

1.  That  the  instrument  is  genuine  and  in  all  respects 
what  it  purports  to  be; 

2.  That  he  has  a  good  title  to  it ; 

3.  That  all  prior  parties  had  capacity  to  contract; 

4.  That  he  has  no  knowledge  of  any  fact  which  would 
impair  the  validity  of  the  instrument  or  render  it  valueless. 

§  67.— Where  a  person  places  his  indorsement  on  an  in- 
strument negotiable  by  delivery  he  incurs  all  the  liabilities 
of  an  indorser. 

The  contract  of  the  indorser,  like  that  of  the  drawer,  is 
a  conditional  promise  to  pay.  The  conditions  are  that  the 
prior  parties  fail  to  pay  and  that  due  notice  of  their  failure 
be  given. 

The  amount  of  the  indorser's  liability  is  the  face  of  the 
instrument,  and  in  addition,  interest  and  notary's  protest  fees. 

Indorsers  are  liable  in  the  order  in  which  they  indorse, 
but  evidence  may  be  admitted  to  show  that  they  have  agreed 
otherwise  as  between  or  among  themselves. 

§  x8o.    Discharge  of  Indorser 

If  the  holder  and  maker  agree  to  an  extension  of  the 
time  of  payment,  it  will  discharge  any  indorsers  of  the  instru- 


LIABILITY  OF  PARTIES 


231 


ment.    Mere  delay  in  bringing  suit  does  not  have  this  effect. 

As  set  forth  in  subsequent  chapters,  failure  to  present  the 
note  for  payment  on  the  due  date  will  discharge  the  indorsers, 
and  if  the  note  is  presented  for  payment  and  not  paid,  the 
indorsers  must  be  duly  notified  if  they  are  to  be  held. 

§  z8z.    Liability  of  Guarantor 

If  instead  of  the  usual  indorsement  or  indorsement  in 
blank,  a  guaranty  is  made,  as,  "For  value  received,  I  hereby 
guarantee  payment  of  within  note,  Warren  Colwell,"  the  effect 
is  that  the  guarantor  waives  the  usual  presentment  and  notice 
of  non-payment. 

Some  courts  hold  that  this  contract  of  guaranty  is  not 
strictly  negotiable  and  will  not  pass  to  any  but  the  next  holder. 
The  usual  form  of  indorsement  is  in  most  cases  preferable. 
A  guarantor  of  collection  instead  of  payment  is  liable  only 
if  the  maker  is  sued  promptly  and  then  cannot  by  legal  means 
be  made  to  pay. 

§  182.    Liability  of  Accommodation  Signer 

Accommodation  paper  is  distinguished  from  business  paper 
by  lack  of  consideration.  Thus  a  man  may  give  his  note  to 
a  friend,  in  order  that  the  latter  may  discount  it  and  so 
secure  funds  to  meet  a  temporary  emergency.  In  the  same 
way  he  may  write  his  acceptance  upon  a  draft  (see  §  205), 
or  indorse  a  note  made  by  a  friend  in  need  of  funds.  The 
distinction  is  often  made  between  real  instruments  and  ac- 
commodation paper  that  the  former  represent  past  and  the 
latter  future  transactions.  In  the  first  case,  a  man  gives  a 
note  for  goods  received ;  in  the  second,  he  indorses  a  note  in 
order  that  its  maker  may  receive  goods. 

Since  the  one  who  is  accommodated  is  not  a  holder  for 
value,  he  cannot  sue  upon  accommodation  paper.  But  anyone 
who  for  accommodation  signs  his  name  to  any  negotiable 


I 


2^2 


NEGOTIABLE  INSTRUMENTS 


lolTT.!, '%'""''";'  '*''""•  "'"P**'^'  °^  •"''•'«^^.  '«  liable 
to  any  holder  for  value.    The  accommodation  signer  is  liable 

Z.  rf  f.'  '°''"  '"''"^  *^^  '^^  ^'^^^  forTccommoda! 
tion  and  that  he  received  no  value.  But  an  accommodation 
signer  is  never  liable  to  the  party  accommodated. 


Review  Questions 


Jk# 


& 


°of  t?*- 'h '"'''*'''  T  •'"""  '"  ''"^  '°"'^'  o*  '^^  '"»'^er  and 
of  the  mdorser  of  a  promissory  note 

*    ^f thU  f'  ''^'^'  °'  indorsement  of  a  negotiable  instrument 
m  this  form,  "Henry  Baldwin,  without  recourse"' 

^       tL      Mf  '"  '"f  u'"  """'  "'■'"  *"*=  '"="'"  '>«~'"«  insolvent 
<L    ma»  !'      '  "";    .""t  "''''*°"  *°^  50  cents  on  the  dollar? 
4.    What  action  of  the  holder  will  discharge  an  indorser?    What 
steps  must  be  taken  to  hold  indorsers  ? 

which  he  sells  to  B.     Then  A  gets  the  grain  by  misrepre- 
senution  from  the  warehouseman  and  sells  to  C     Would  B 
have  any  claim  on  C?    What  rights  would  B  have? 
ii^one??  "   ^"^"'"^   °*   "^eof'Me   paper   differ   from   an 

7-    The  holder  of  a  demand  note  agreed  that  he  would  not  transfer 

he  note  Or  put  it  in  the  bank  for  collection,  but  would  hold 

It  till  such  time  as  he  wanted  the  money,  and  would  then 

make  demand  for  it.    Upon  this  the  defendant,  at  the  maker's 

request,  indorsed  the  note.     The  plaintiff  forbore  suit  for  over 

l^^Ived"  ''  '"'  "'°""  "'""'  ^"^'^  **  •'«»'  P"''-P''= 
&  Directors  of  a  company  indorse  its  note  to  enable  it  to  make 
a  loaa  The  note  is  paid  by  the  first  indorser.  What  claim 
for  indemnity  has  he  against  the  subsequent  indorsers? 
9.  A  signs  what  he  thinks  is  a  subscription  blank  for  a'  set  of 
books,  in  reality  the  paper  is  a  cleverly  contrived  promissory 
note.  This  note  is  negotiated.  It  passes  into  the  hands  of 
a  purchaser  for  value.  In  your  state  can  this  holder  force 
the  maker  to  pay  the  note? 


LIABILITY  OF  PARTIES 


233 


10.  B  is  induced  to  buy  an  automobile  by  false  representation.    He 

gives  a  note  in  part  payment.  When  he  finds  that  he  has 
been  defrauded,  he  notifies  the  payee  that  he  will  not  pay 
the  note,  but  meanwhile  the  payee  has  negotiated  the  note  to 
another,  who  is  an  innocent  purchaser  for  value.  Can  the 
latter  force  B  to  pay  the  note? 

11.  C  dates  a  check  and  signs  his  name,  but  does  not  fill  out  the 

other  spaces.  The  check  is  stolen  and  filled  out  by  the  thief. 
It  passes  into  the  hands  of  an  innocent  party  who  pays  value. 
Will  that  party  be  able  to  collect  the  check  from  C? 


5 

II 


CHAPTER  XXXI 

PRESENTMENT  FOR  PAYMENT 
§  183.    Necetsity  of  Presentment 

The  maker  or  acceptor  of  a  negotiable  instrument  is  liable 
without  presentment  for  payment,  but  if  the  drawer  and  in- 
dorsers  are  to  be  held,  it  must  be  presented  for  payment 

r.J'TT'^^'^''''  ^  "^"^^  ^"  ^^  ^"^  ^^'^  ^cept  in  the 
case  of  demand  paper  which  must  be  presented  within  a 

reasonable  time.    "Days  of  grace"  were  three  extra  days  which 

were  formerly  aUowed  for  the  payment  of  commercial  paper. 

§  184-    Requirements  for  Presentment 

madef  *'~^'^'^"*"'*'"*  ^""^  Payment,  to  be  sufficient,  must  be 

1.  By  the  holder,  or  by  some  person  authorized  to  re- 
ceive payment  on  his  behalf; 

2.  At  a  reasonable  hour  on  a  business  day; 
3-    At  a  proper  place  as  herein  defined  • 

if  ht  ulu'^\^''^  ^"""^'"^  "^*^^"  °"  '^^  instrument,  or 
if  he  IS  absent  or  inaccessible,  to  any  person  found  at  the 
place  where  the  presentment  is  made. 

place^*"^"'^^'"*'"*  ^°''  ^^'"''"*  ''  '"*''*^  *^  ^^"^  P«>P«'" 

m  J;  anTr  1^^^''  ""^  P'^'"'  ''  '^^'^^  ^'^  the  instru- 
ment and  It  IS  there  presented; 

drl  n^^"'*  "*"  ^^"""^  °^  ^^'"'""^  ''  ^P^^^^fi^^*  but  the  ad. 

-   mZl  lU  .  ^T  '"^  '"^^  P*^'"^"^  "  ^^^«  '»  the  instni- 
ment  and  it  is  there  presented; 

3.  Where  no  place  of  payment  is  specified  and  no  address 
IS  given  and  the  instrument  is  presented  at  the  usual  Se 
of  business  or  residence  of  the  person  to  make  payment 

«34 


PRESENTMENT  FOR  PAYMENT  23$ 

4.  In  any  other  case  if  presented  to  the  person  to  make 
payment  wherever  he  can  be  found,  or  if  presented  at  his 
last  known  place  of  business  or  residence. 

§74. — The  instrument  must  be  exhibited  to  the  person 
from  whom  payment  is  demanded,  and  when  it  is  paid  must 
be  delivered  up  to  the  party  paying  it. 

If  the  instrument  is  payable  at  a  bank,  presentment  must 
be  made  during  banking  hours  imless  payee  has  no  funds 
there,  in  which  case  any  hour  before  the  closing  of  the  bank 
will  do.  If  the  bank  holds  such  a  note  for  collection  and  it 
is  in  the  bank  on  its  due  date,  no  other  presentment  is  necessary. 

Speaking  generally,  it  is  the  bank^s  duty  to  use  all  diligence 
in  respect  to  negotiable  paper  left  with  it  for  collection.  This 
involves  prompt  presentation  for  acceptance  if  acceptance  is 
necessary ;  and  presentation  for  payment  on  the  date  of  pay- 
ment within  banking  hours,  at  the  place  specified  in  the  instru- 
ment, if  any,  and  if  not,  at  the  maker's  place  of  business. 
In  case  the  instrument  is  not  paid  on  presentation  when  due, 
it  is  the  bank's  duty  to  protest  it,  if  not  otherwise  instructed 
by  the  owner,  and  to  give  due  notice  of  its  dishonor  to  all 
indorsers,  and  to  do  any  other  things  necessary  for  the  col- 
lection of  the  instrument.  The  bank  is  liable  for  any  failure 
in  its  performance  of  its  duty. 

§  Z85.    Presentment  Excused 

§  82.— Presentment  for  payment  is  dispensed  with : 
•    I.    Where,  after  the  exercise  of  reasonable  diligence  pre- 
sentment as  required  by  this  act  cannot  be  made; 

2.  Where  the  drawee  is  a  fictitious  person ; 

3.  By  waiver  of  presentment,  express  or  implied. 

§  z86.    When  Due 

§  85. — ^Every  negotiable  instrument  is  payable  at  the  time 
fixed  therein  without  grace.  When  the  day  of  maturity  falls 
upon  Sunday  or  a  holiday,  the  instrument  is  payable  on  the 


I 


wm 


i* 


236 


NEGOTIABLE  INSTRUMENTS 


n«rt  succeeding  business  day.    Instruments  falling  due  on 
Sanrday  are  to  be  presented  for  payment  on  the  nex"  su" 
ceedmg  busmess  day.  except  that  instruments  payable  o„de 
mand  may.  at  the  option  of  the  holder,  be  present^  W 
payment  before  twelve  o'clock  noon  „„  c  .     Presented  for 
entire  day  is  not  a  honda^  ''  "''"  *•"' 

aftefdail^r  *! '"'*™"^"*  '''  P^'y""'  «  «  Axed  period 

"e  d^ofttr  """^ '°  ■-- '^  -  -  •>' '^^^^^^^^ 

If  an  instrument  is  due  a  month  or  more  after  date  a 
calendar  month  is  meant  A  note  dated  Februar^  6  and  due 
a  month  from  date  win  fall  due  on  March  16  wheAerIn 
leap  year  or  any  other  year.  wnemer  m 


Review  Questions 


I. 


2» 


What  were  "days  of  grace"  as  understood  in  the  law  relating  to 
commercial  paper?  reianng  to 

4.    A  note  held  by  the  bank  at  which  it  is  payable  is  not  paid  at 
matunty.    Must  there  be  a  presentment  and  demand  ofjay 

^'    ""TsZ'^^let'Jj  '5  ^^r""'^  P^P^^  determined?     .What 

6.    Hnw  i"  ^i  "^"^  ^''"  ^""'  ^'^  ^  '^^^^^^y  ?    On  a  Saturday  ? 

tx    How  should  presentment  be  made?  ^"ru«iy. 

^*    ^^Jnt'^'  ™''^'^  ""^  ^'''P'°'  "^^^^  *^^^"  ^^^"gh  the  instrument 
IS  not  presented  on  the  due  date  ^  «ruinent 

a^  Would  it  be  proper  under  any  circumstances  to  present  a  note 

o     If  th'  'T'"'  ''  ''\'"''"'  ^^^  "^^  ^^^^-^  -Jong  the  street 
9.    I^  tJ>«  niaker  cannot  be  found,  what  is  the  situation? 


CHAPTER  XXXII 
NOTICE  OF  DISHONOR 

§  187.    Necessity  of  Notice 

§  89. — Except  as  herein  otherwise  provided,  when  a  nego- 
tiable instrument  has  been  dishonored  by  non-acceptance  or 
non-payment,  notice  of  dishonor  must  be  given  to  the  drawer 
and  to  each  indorser,  and  any  drawer  or  indorser  to  whom 
such  notice  is  not  given  is  discharged. 

The  holder  must  give  notice.  If  the  note  has  been  left 
with  a  bank  for  collection,  it  as  agent  for  the  holder  would 
give  notice.  If  the  note  has  been  given  to  a  notary  for  protest, 
he  usually  gives  the  required  notice. 


§  188.    Effect  of  Notice 

1 92. — ^Where  notice  is  given  by  or  on  behalf  of  the  holder, 
it  enures  for  the  benefit  of  all  subsequent  holders  and  all 
prior  parties  who  have  a  right  of  recourse  against  the  party 
to  whom  it  is  given. 

§  93.— Where  notice  is  given  by  or  on  behalf  of  a  party 
entitled  to  give  notice,  it  enures  for  the  benefit  of  the  holder 
and  all  parties  subsequent  to  the  party  to  whom  notice  is 
given. 

§189.    Form  of  Notice 

The  notice  may  be  informal  provided  it  is  so  clear  as  not 
to  mislead  the  party  to  whom  it  is  sent.  It  may  even  be  oral. 
It  may  be  delivered  personally  or  by  mail.  It  may  be  given 
to  the  party  or  to  someone  acting  as  his  authorized  agent 

337 


*4 


4ii 


i 


li 


II 
II 


238 


NEGOTIABLE  INSTRUMENTS 


§  X90.    Time  of  Notice 

Where  both  parties  reside  in  the  same  place,  the  time  when 
notice  must  be  given  is  as  follows: 

§  103.— I.  If  given  at  the  place  of  business  of  the  person 
to  receive  notice,  it  must  be  given  before  the  dose  of  business 
hours  on  the  day  following; 

2.  If  given  at  his  residence,  it  must  be  given  before  the 
usual  hours  of  rest  on  the  day  following; 

3.  If  sent  by  mail,  it  must  be  deposited  in  the  post-office 
m  time  to  reach  him  in  usual  course  on  the  day  following. 

If  the  parties  reside  in  different  places,  the  rule  is  as 
follows: 

§  104.— I.  If  sent  by  mail,  it  must  be  deposited  in  the 
post-office  in  time  to  go  by  mail  the  day  following  the  day  of 
dishonor,  or  if  there  be  no  mail  at  a  convenient  hour  on 
that  day,  by  the  next  mail  thereafter. 

a.  If  given  otherwise  than  through  the  post-office,  then 
within  the  time  that  notice  would  have  been  received  in  due 
course  of  mail,  if  it  had  been  deposited  in  the  post-office 
within  the  time  specified  in  the  last  subdivision. 

Where  a  notice  is  duly  deposited  in  the  post-office,  within 
the  specified  time,  it  is  deemed  a  good  notice,  whether  or  not 
It  reaches  its  destinatioa 

The  party  receiving  notice  is  aflowed  the  same  period  of 
time  to  send  notice  to  antecedent  parties  that  was  permitted 
to  the  last  holder. 

§  191.    Where  to  Send  Notice 

If  the  party  has  given  an  address,  notice  should  be  sent 
there;  otherwise — 

§  108.— I.  Either  to  the  post-office  nearest  to  his  place 
of  residence,  or  to  the  post-office  where  he  is  accustomed  to 
receive  his  letters;  or 


KbtlCE  OF  DISHONOR  239 

2.  If  he  lives  in  one  place,  and  has  his  place  of  business 
in  another,  notice  may  be  sent  to  either  place;  or 

3.  If  he  is  sojourning  in  another  place,  notice  may  be 
sent  to  the  place  where  he  is  so  sojourning. 

But  where  the  notice  is  actually  received  by  the  party 
within  the  time  specified  in  this  act,  it  will  be  sufficient, 
though  not  sent  in  accordance  with  the  requirements  of  this 
section. 

Delay  in  giving  notice  is  excused  when  caused  by  circum- 
stances beyond  the  control  of  the  holder. 

§  192.    When  Notice  Is  Not  Required 

Notice  of  dishonor  is  not  required  to  be  given  to  the  drawer 
in  the  following  cases: 

H  114. — I.    Where  the  drawer  and  drawee  are  the  same 

person ; 

2.  Where  the  drawee  is  a  fictitious  person  or  a  person 
not  having  capacity  to  contract; 

3.  Where  the  drawer  is  the  person  to  whom  the  instru- 
ment is  presented  for  payment; 

4.  Where  the  drawer  has  no  right  to  expect  or  require 
that  the  drawee  or  acceptor  will  honor  the  instrument; 

5.  Where  the  drawer  has  countermanded  payment. 

§  193.    Protest 

A  protest  is  practically  a  certificate  by  a  notary  that  the 
instrument  has  been  presented,  a  demand  for  payment  made, 
and  such  demand  refused,  and  that  the  notary  has  protested 
against  such  non-payment  and  has  sent  notice  of  such  protest 
and  non-payment  to  the  party  concerned.  This  is  followed 
by  the  official  signature  and  seal  of  the  notary.  The  object 
of  protest  is  to  hold  those  secondarily  liable.  The  acceptor 
of  a  draft  and  the  maker  of  a  note,  are  principal  debtors  and 
are  held  with  or  without  protest. 

Foreign  bills  of  exchange  must  always  be  protested,  as 


240 


NEGOTIABLE  INSTRUMENTS 


^ 


I       I 


•i| 


the  notary's  certificate  is  the  only  admissible  evidence  of  the 
bill's  dishonor. 

In  case  a  bank  protests  a  draft  ahead  of  time,  it  is  liable 
to  the  acceptor  for  injury  to  his  credit 

Any  negotiable  instrument  may  be  protested  for  non-ac- 
ceptance or  non-payment,  but  such  procedure  is  not  legally 
required,  except  for  foreign  bills  of  exchange.  The  costs 
of  a  protest  are  added  to  the  amount  to  be  paid  by  any  party 
liable  on  the  instrument.  Fees  for  protest  are  fixed  by  statute. 
Protest  is  advisable,  as  the  notary  will  send  the  required  notice 
and  put  the  evidence  of  non-payment  and  due  notice  in  the 
best  possible- shape  for  use,  if  htigation  results. 

If  it  is  desired  to  avoid  the  expense  of  protest,  it  is 
necessary  to  attach  notice  of  "No  Protest"  to  any  instrument 
sent  through  a  bank  for  collection,  otherwise  the  bank  will 
give  its  notaries  a  chance  to  make  fees. 


2. 

3- 


Review  Questions 

Notice  of  dishonor  is  to  be  given  by  whom?    To  whom  must 

notice  be  sent? 
What  is  the  effect  if  notice  is  not  given? 
What  is  the  rale  as  to  the  time  of  notice:  (a)  Where  the  parties 

live  in  the  same  place?     (b)  Where  they  reside  in  different 

places  ? 

4.  If  notice  was  sent  by  mail  and  owing  to  a  train  wreck  the  letter 

was  destroyed,  would  the  person  to  be  notified  be  released? 

5.  Who  pays  the  cost  of  protest?    What  does  the  term  "protest" 

mean  ? 

6.  E  holds  an  unpaid  note  and  gives  due  notice  to  fourth  indorser, 

who  gives  due  notice  to  second  indorser,  who  gives  due  notice 
to  first  and  third.    Who  are  liable  to  E? 
7. '  What  form  of  negotiable  instruments  legally  require  protest  and 
for  what  defaults? 


CHAPTER  XXXIII 

DISCHARGE  OF  NEGOTIABLE  INSTRUMENTS 

§  194.    When  Discharged 

A  negotiable  instrument  is  discharged : 

1 119. I.    By  payment  in  due  course  by  or  on  behalf  of 

the  principal  debtor ; 

2.  By  payment  in  due  course  by  the  party  accommodated, 
where  the  instrument  is  made  or  accepted  for  accommoda- 
tion; 

3.  By  the  intentional  cancellation  thereof  by  the  holder; 

4.  By  any  other  act  which  will  discharge  a  simple  con- 
tract for  the  payment  of  money; 

5.  When  the  principal  debtor  becomes  the  holder  of  the 
instrument  at  or  after  maturity  in  his  own  right. 

A  person  secondarily  liable   on  the  instrument  is  dis- 
charged: 

1 120. I.    By  an  act  which  discharges  the  instrument; 

2.  By  the  intentional  cancellation  of  his  signature  by 

the  holder; 

3.  By  the  discharge  of  a  prior  party ; 

4.  By  a  valid  tender  of  payment  made  by  a  prior  party. 

Also  by  release  of  the  principal  debtor  or  by  extension  of 
his  time  of  payment.  Merely  letting  the  time  of  payment  go 
by  without  beginning  suit  is  not  granting  an  extension. 

§  195.    When  Not  Discharged 

When  paid  by  a  party  other  than  the  maker  or  drawee, 
the  instrument  is  not  discharged,  but  the  party  paying  it  may 
enforce  payment  against  all  prior  parties  on  the  instrument. 

241 


Ill 


I      1 


242 


NEGOTIABLE  INSTRUMENTS 


§196.    Effect  of  Alteration 

Any  material  alteration,  unless  made  with  the  assent  of 
aU  parties  concerned,  will  invalidate  the  instrument,  except 
as  agamst  the  parties  who  made  the  alteration. 

Any  alteration  is  material  which  changes : 

§125.-1.    The  date; 

2.  The  sum  payable,  either  for  principal  or  interest; 

3.  The  time  or  place  of  payment; 

4.  The  number  or  the  relations  of  the  parties; 

5.  The  medium  or  currency  in  which  payment  is  to  be 
made; 

Or  which  adds  a  place  of  payment  where  no  place  of 
payment  ,s  specified,  or  any  other  change  or  addition  which 
alters  the  effect  of  the  instrument  in  any  respect,  is  a 
material  alteration. 


Review  Questions 

How  is  liability  of  indorser  affected  when  maker  and  holder 

agree  to  extend  time  of  payment? 
If  an  indorser  pays  a  note  to  avoid  suit,  what  rights  has  he^ 
An  mstrument  which  has  been  materially  altered  is  in  due  course 

in  the  hands  of  a  holder  not  a  party  to  the  alteration.    May 

he  enforce  payment  according  to  original  tenor  .^ 
What  alterations  in  negotiable  instruments  are  material? 
A  negotiable  note  executed  and  delivered  by  A  to  B  passes  in 

due  course  to  and  is  indorsed  in  blank  by  B,  C,  D,  and  E. 

•    1    i-^m'*    ^'"^^^  """^  '*"^^"  °"^  ^^'  indorsement.     What 
IS  the  liability  of  C,  D,  and  E  ? 

6.    Under  what  circumstances  is  an  indorser  relieved  from  liabilitv 
as  such?  •' 


3. 


4. 

5» 


I. 
2. 

3- 

4, 


CHAPTER  XXXIV 

PROMISSORY  NOTES 

§  197.     Definition 

A  note  is  described  and  defined  by  the  Uniform  Negotiable 
Instmments  Law  as  follows : 

It  is  a  written  promise  without  condition, 
By  the  maker  to  another,  or  to  the  maker's  order, 
To  pay  a  sum  certain  in  money  to  order  or  to  bearer, 
On  demand  at  a  fixed  or  determinable  future  time. 

I  lg4. — A  negotiable  promissory  note  within  the  meaning 
of  this  act  is  an  unconditional  promise  in  writing  made  by 
one  person  to  another,  signed  by  the  maker,  engaging  to 
pay  on  demand  or  at  a  fixed  or  determinable  future  time  a 
sum  certain  in  money  to  order  or  to  bearer.  Where  a  note 
is  drawn  to  the  maker's  own  order,  it  is  not  complete  until 
indorsed  by  him. 

§  198.    Liability  of  Maker 

The  liability  of  the  maker  of  a  promissory  note  may  vary 
in  nine  different  ways  as  follows:  * 

I.  Where  the  note  is  signed  with  his  name  by  another 
at  his  direction,  he  is  liable  in  the  same  manner 
as  though  he  had  personally  signed  the  note. 

3.  Where  he  signs  and  delivers  the  note  without  con- 
sideration to  the  party  who  seeks  to  enforce  it, 
he  is  not  liable  if  he  raises  the  question  and  prop- 
erly makes  the  defense  of  lack  of  consideration. 


»C.  p.  A.  Problems.  Vol.  I,  page  235-  This  differentiation  <5f  liability  is  far- 
fetched  and  even  fantastic.  It  is  brought  in  here  only  because  required  to  answer 
a  question  actually  asked. 


a44 


^ 


4- 


6. 


NEGOTIABLE  INSTRUMENTS 

Where  he  signs  and  delivers  the  note  without  con- 
sideration and  it  subsequently  comes  into  the  hands 
of  a  holder  in  due  course,  he  is  liable. 

Where  his  signature  is  forged  by  the  party  who  seeks 
to  enforce  it,  he  is  not  liable. 

Where  his  liability  is  sought  to  be  enforced  by  one 
to  whom  It  was  negotiated  for  value  by  the  party 
forging  his  signature,  he  niay  set  up  that  the  in- 
strument was  forged  even  against  a  holder  in  due 
course. 

Where  the  instrument  sued  on  is  not  dated,  does  not 
state  that  it  is  given  for  value,  and  does  not 
specify  the  place  where  it  is  drawn  or  the  place 
where  it  is  payable,  he  is  liable. 

Where  the  holder  of  the  note  has,  without  the  assent 
of  the  maker,  changed  its  date,  he  is  not  hable 
on  the  note  either  in  its  present  or  its  original 
form.  Alteration  of  date  is  a  material  alteratioa 
Where  the  holder  of  the  note  has,  without  the  assent 
of  the  maker,  changed  its  place  of  payment,  he  is 
not  hable.  Place  of  payment  is  a  material  term 
of  the  note. 

Where  the  holder  of  the  note  has  muntentionaUy 
marked  it  canceUed,  he  is  liable,  provided  the 
holder  can  prove  that  the  canceUation  was  unin- 
tentional.   The  burden  of  proof  is  on  the  holder. 


§  199-    Interest 

The  holder  of  a  note  on  which  interest  is  payable  at  fixed 
periods  need  not  protest  or  take  any  action  in  case  of  default 
of  interest  payments.  He  may  simply  wait  mitil  the  principal 
is  due  and  then  proceed  to  collect  the  whole  amount  of  L 
note. 


PROMISSORY  NOTES 


245 


a 


The  legal  rate  of  interest  at  the  place  where  payment  is 
to  be  made  will  determine  the  rate  if  not  specified  in  the 
note. 

§20o.    Demand  Notes 

If  an  indorser  on  a  demand  note  is  to  be  held,  payment 
must  be  demanded  within  a  reasonable  time;  the  maker  will 
be  bound  even  if  demand  is  not  made  for  a  very  long  time. 
The  only  limitation  protecting  the  maker  is  that  imposed  by 
the  Statute  of  Limitations.  It  is  held  that  the  statute  begins 
to  run  from  the  time  a  cause  of  action  accrues.  In  the  case 
of  a  demand  note,  this  is  from  the  time  the  note  is  delivered 
by  the  maker  to  the  payee. 

§  201.    Effect  of  Renewal 

If  a  new  note  is  taken  in  exchange  for  an  unpaid  one, 
it  operates  only  as  a  suspension  of  the  old  debt,  not  as  an 
extinguislmient  of  it,  unless  by  special  agreement.  In  case 
the  new  note  is  not  met,  the  old  note  may  be  sued  upon.  This 
is  true  whether  or  not  the  old  note  is  retained  by  the 
creditor. 

§  202.    Note  as  a  Gift 

If  a  gift  is  made  of  a  promissory  note  payable  to  the 
order  of  the  donee,  and  he  should  indorse  it  and  transfer  it 
to  an  innocent  holder  for  value,  it  would  be  good.  The  donee 
could  not  collect  by  suit  himself  because  he  would  be  met 
by  the  defense  of  no  consideration. 

If  the  note  were  made  payable  to  the  donor's  order  and 
he  indorsed  it  in  blank,  the  immediate  party  who  received  it 
and  gave  no  value  in  return  could  not  enforce  pa)mient  of  the 
note. 


246 


NEGOTIABLE  INSTRUMENTS 


I. 

2. 
3. 


Review  Questions 

If  a  note  is  given  to  A  and  the  donor  dies,  can  A  collect?  If 
A  has  discounted  the  note  at  the  bank  can  the  bank  collect? 

What  are  the  essentials  of  a  promissory  note? 

The  holder  of  a  demand  note  failed  to  present  it  for  two  years. 
Then  the  maker  had  vanished.  Could  the  holder  collect  from 
the  mdorsers? 

What  are  nine  different  ways  in  which  a  note  may  be  issued 
or  handled,  and  the  varying  liabilities  of  the  maker  in  each 
case? 


CHAPTER  XXXV 


BILLS  OF  EXCHANGE  AND  ACCEPTANCES^ 

§  203.     Definition 

§  126. — A  bill  of  exchange  is  an  unconditional  order  in 
writing  addressed  by  one  person  to  another,  signed  by  the 
person  giving  it,  requiring  the  person  to  whom  it  is  ad- 
dressed to  pay  on  demand  or  at  a  fixed  or  determinable 
future  time  a  certain  sum  in  money  to  order  or  to  bearer. 

An  inland  bill  is  one  drawn  and  payable  within  the  states 
Any  other  is  a  foreign  bill.  A  bill  of  exchange  when  accepted 
becomes  an  acceptance. 

A  draft  is  an  order  to  pay  money — it  includes  bills  of 
exchange,  checks  and  all  other  forms  of  orders  to  pay  money. 

§  204.    Liability  of  Maker,  Drawer,  and  Acceptor 

The  maker  of  a  draft  is  called  the  drawer.  He  is  anal- 
ogous to  the  maker  of  a  note.  The  maker  of  a  promissory 
note  engages  to  pay  the  note  he  issues  according  to  its  tenor 
and  admits  the  existence  of  the  payee  and  his  capacity  to 
indorse.  The  drawer  of  a  draft  assumes  the  same  liability. 
if  it  is  not  paid  by  the  drawee  and  the  necessary  proceedings 
on  dishonor  are  taken.  A  draft  may  be  presented  to  the 
drawee  before  payment  to  make  sure  that  he  will  accept  its 
obligations. 

§  205.    Acceptance 

§  I32.--The  acceptance  of  a  bill  is  the  signification  by  the 
drawee  of  his  assent  to  the  order  of  the  drawer.  The 
acceptance  must  be  in  writing  and  signed  by  the  drawee.    It 

^  For   forms  see  Chapter  CIII,  Forms  42-44. 

247 


^48  NEGOTIABLE  INSTRUMENTS 

must  not  express  that  the  drawee  will  perform  his  promise 
by  any  other  means  than  the  payment  of  money. 

An  acceptance  is  an  engagement  to  pay  a  bill  of  exchange 
as  requested  by  the  drawer.  An  acceptance  is  usually  accord- 
ing to  the  tenor  of  the  bill,  in  which  case  it  is  called  a  general 
or  absolute  acceptance. 

Qualified  Acceptance.  A  qualified  acceptance  is  sometimes 
given. 

§  141.— An  acceptance  is  quahfied  which  is : 

1.  Conditional;  that  is  to  say,  which  makes  payment  by 
the  acceptor  dependent  on  the  fulfillment  of  a  condition 
therein  stated; 

2.  Partial ;  that  is  to  say,  an  acceptance  to  pay  part  only 
of  the  amount  for  which  the  bill  is  drawn ; 

3.  Local;  that  is  to  say,  an  acceptance  to  pay  only  at  a 
particular  place; 

4.  Qualified  as  to  time; 

5.  The  acceptance  of  some  on^  or  more  of  the  drawees, 
but  not  of  all. 

The  holder  may  require  that  the  acceptance  be  written  on 
the  bill.  It  should  not  be  written  on  another  piece  of  paper. 
The  drawee  has  twenty-four  hours  to  decide  whether  he  will 
accept  or  not.  If  he  destroys  the  bill  or  fails  to  return  it,  he 
will  be  held  to  have  accepted  it 

Mode  of  Acceptance.  Upon  presentation  of  the  bill  of 
exchange,  the  drawee,  if  he  wishes  to  pay  the  order  according 
to  its  terms,  may  do  so  by  writing  across  its  face  the  word 
"Accepted,"  followed  by  signature  and  date.  When  this  is 
done  by  the  drawee  he  becomes  the  acceptor,  and  thereby 
agrees  to  pay  the  bill  at  maturity,  according  to  its  tenor,  with- 
out qualifying  conditions. 

Effect  of  Acceptance.  The  effect  of  the  acceptance  of 
a  bill  of  exchange  is  to  constitute  the  acceptor  the  principal 
debtor.     The  bill  of  exchange  becomes,  by  the  acceptance, 


BILLS  OF  EXCHANGE  AND  ACCEPTANCES 


249 


similar  to  a  promissory  note — the  acceptor  being  the  promissor, 
and  the  drawer  standing  in  the  relation  of  an  indorser  or 
surety. 

§  206.    Dollar  Acceptance 

By  the  term  "dollar  acceptance,"  as  used  in  international 
trade,  is  meant  an  accepted  bill  of  exchange  drawn  in  Ameri- 
can dollars.  The  term  has  become  familiar  in  this  country 
since  the  enactment  of  and  amendments  to  the  federal  reserve 
banking  law,  which  created  a  system  of  modern  bills  of 
exchange  for  American  business.  Prior  to  the  establishment 
of  this  system,  it  was  the  usual  custom  to  draw  bills  of 
exchange  in  pounds  sterling.  Most  of  the  international  trade 
was  financed  through  London;  that  is  to  say,  financial  in- 
stitutions of  London  granted  to  traders  acceptance  credits 
which  authorized  the  drawing  of  bills  of  exchange  on  such 
institutions.  By  this  agreement,  the  trader  was  assured  that 
the  London  bank  would  accept  his  bill.  Thus,  such  institutions 
lent  their  credit,  for  which  they  charged  a  commission,  and 
a  merchant  in  London  or  even  in  South  America  would  deal 
with  both  his  creditors  and  his  debtors  in  this  country  in 
terms  of  pounds  sterling. 

Under  the  amendment  of  September  7,  19 16,  to  the  Fed- 
eral Reserve  Act,  in  addition  to  the  power  to  accept  bills 
involved  in  the  exportation  and  the  importation  of  goods, 
federal  reserve  banks  have  the  power  to  accept  bills  drawn 
upon  them  by  foreign  banks  or  bankers  in  the  same  way  that 
London  banks  accommodate  foreign  traders.  The  reserve 
banks  may  accept  drafts  or  bills  of  exchange  drawn  upon 
them,  having  not  more  than  three  months  to  run,  exclusive 
of  days  of  grace,  drawn  under  regulations  to  be  prescribed 
by  the  Federal  Reserve  Board,  by  banks  or  bankers  in  foreign 
countries  or  dependencies  or  insular  possessions  of  the  United 
States,  for  the  purpose  of  furnishing  dollar  exchange  as  re- 


2SO 


NEGOTIABLE  INSTRUMENTS 


quired  by  the  usages  of  trade  in  the  respective  countries, 
dependencies,  or  insular  possessions. 

It  is  likely  that  in  years  to  come  New  York  will  be  as 
important  financially  and  commercially  as  London;  and,  as 
the  use  of  a  decimal  currency  has  much  to  recommend  it, 
there  is  good  reason  to  believe  that  the  future  will  see  dollar 
exchange  more  generally  used  than  sterling  exchange  has  been 
in  the  past.  It  is  certain  that  every  business  man  should  imder- 
stand  clearly  what  is  meant  by  "dollar  acceptances/'  and  its 
synonyms  "dollar  exchange,"  and  "dollar  credits,"  as  the 
terms  are  used  by  bankers. 

§  307.    Bank  Acceptances 

Under  the  federal  reserve  law,  member  banks  of  the  fed- 
eral reserve  system  are  empowered  to  grant  bankers'  accept- 
ance credits ;  that  is  to  say,  "Any  member  bank  may  accept 
drafts  or  bills  of  exchange  drawn  upon  it  and  growing  out 
of  transactions  involving  the  importation  or  exportation  of 
goods  having  not  more  than  six  months'  sight  to  run."  *  A 
bankers'  acceptance,  as  defined  by  the  Federal  Reserve  Board, 
"is  a  bill  of  exchange  of  which  the  acceptor  is  a  bank  or  trust 
company,  or  a  firm,  person,  company,  or  corporation  engaged 
in  the  business  of  granting  bankers'  acceptance  credits." 

When  the  bank,  trust  company,  firm,  person  or  corpora- 
tion, accepts  the  bill  of  exchange,  it  has  loaned  its  credit,  not 
its  funds.  The  direct  responsibility  for  the  payment  of  the 
bin  of  exchange  that  has  become  an  acceptance,  rests  on  the 
bank  or  concern  granting  the  acceptance  credit.  Such  accepted 
bills  of  exchange  are  payable  in  our  country  and  hence  are 
known  as  "dollar  acceptances." 

§  20^.    Domestic  Bank  Acceptances 

The  rules  of  the  Federal  Reserve  Board  are  somewhat 
more  rigid  with  regard  to  bank  acceptance  credits  covering 

■  I  13  of  the  Federal  Reserve  Act. 


BILLS  OF  EXCHANGE  AND  ACCEPTANCES 


251 


domestic  shipments.  Such  acceptances  are  used  mainly  to 
finance  domestic  transactions  involving  major  staples.  And 
the  federal  reserve  law  provides  that  "Any  member  bank 
(of  the  federal  reserve  system)  may  accept  drafts  or  bills 
of  exchange  drawn  upon  it,  having  not  more  than  six  months' 
sight  to  rim,  exclusive  of  days  of  grace  ....  which  grow  out 
of  transactions  involving  the  domestic  shipment  of  goods,  pro- 
vided shipping  documents^  conveying  or  securing  title  are 
attached  at  the  time  of  acceptance;  or  which  are  secured  at 
the  time  of  acceptance  by  a  warehouse  receipt  or  other  such 
document  conveying  or  securing  title  covering  readily  market- 
able staples." 

Such  acceptances  are  known  as  dollar  acceptances  against 
domestic  shipment  of  goods,  or  domestic  bank  acceptances. 

§209.    Trade  Acceptances 

In  this  country  most  of  the  credit  business  has  been  done 
on  the  open-account  system  whereby  goods  are  sold  at  thirty, 
sixty,  or  ninety  days,  or  in  many  cases  without  any  definite 
time  of  payment.  This  system  has  many  disadvantages.  It 
compels  the  seller  to  carry  the  financial  burden  of  the  buyer 
and  so  ties  up  his  capital  for  an  indefinite  period.  Also,  the 
expense  involved  in  collecting  slow  accounts  and  granting 
extensions  constitutes  in  the  aggregate  a  heavy  tax  on  business. 
'  All  these  disadvantages  are  eliminated  by  the  use  of  the  trade 
acceptance. 

A  trade  acceptance  is  a  bill  of  exchange  drawn  by  the 
seller  directly  on  the  purchaser  of  goods,  and  accepted  by  the 
purchaser.  The  direct  responsibility  for  the  payment  of  the 
bill  rests  on  the  person,  firm  or  corporation  accepting  the  bill 
of  exchange.     The  Federal  Reserve  Board  has  defined  the 


all  the  documents  required  to  prove  title  to  the  ship- 
irance  policy,   consular  invoice,   and  so   on.      Principles 


•  "Shipping  documents"  are  all  the  documents  required  to  prov 
ments — the  bill  of  lading,  insurance  policy,   consular  invoice,  and 
of  Foreign  Trade.     Savay,  page  306. 


dS^ 


NEGOTIABLE  INSTRtTMENTS 


trade  acceptance  as  a  "bill  of  exchange,  drawn  by  the  seller 
on  the  purchaser,  of  goods  sold  and  accepted  by  such  pur- 
chaser." 

Functions  of  the  Trade  Acceptance.  Trade  acceptances 
are  instnunents  of  credit,  and  when  properly  created  are 
eligible  for  purchase  by  federal  reserve  banks.  They  thus 
add  to  the  circulating  medium,  just  as  do  eligible  bank  ac- 
ceptances. 

The  extensive  use  of  the  trade  acceptance  in  American 
business  is  urged  as  a  remedy  to  cure  the  defects  of  the  open- 
account  system,  as  it  provides  the  seller  with  an  instrument 
which  he  may  sell  to  his  bank,  broker,  or  other  persons  en- 
gaged in  discounting  such  commercial  paper,  thus  enabling 
him  to  keep  liquid  and  mobile  the  capital  that  would  otherwise 
be  tied  up  in  open  book  accounts. 

■i' 

§210.    The  Discount  of  Acceptances 

Under  Section  14  of  the  federal  reserve  banking  law,  and 
under  rules  and  regulations  prescribed  by  the  Federal  Reserve 
Board,  federal  reserve  banks  may  purchase  and  sell  in  the 
open  market  bankers*  acceptances  and  bills  of  exchange  from 
banks,  firms,  corporations,  or  individuals. 

It  should  be  borne  in  mind  that  federal  reserve  banks 
proper  do  not  "accept"  bills  of  exchange,  but  may  purchase 
acceptances  in  the  open  market  (discount  them),  or  may 
rediscount  eligible  acceptances  for  member  banks. 

§  211.    Rules  for  Discount  of  Bank  Acceptances 

§  182.— A  bankers*  acceptance  may  be  discounted  with  any 
^federal  reserve  bank,  under  the  following  rules  prescribed 
by  the  Federal  Reserve  Board: 

1.  The  acceptance  must  have  maturity  at  purchase  of 

not  more  than  three  months. 

2.  The  bill  must  have  been  drawn  under  credit  opened 


3- 


BILLS  OF  EXCHANGE  AND  ACCEPTANCES  253 

for  the  purpose  of  taking  care  of  transactions  in- 
volving 

(a)  Foreign  shipment  of  goods, 

(b)  Shipment  within  United  States,  provided  bill 

is  accompanied  by  shipping  documents,  or 

(c)  Storage  within  United  States  of  readily  mar- 

ketable goods,  provided  acceptor  is  secured 
by  proper  receipt,  or 

(d)  Storage  within  United  States  of  goods  ac- 

tually sold,  provided  the  bill  is  secured  by 

pledge  of  such  goods. 
Or   the  bill   must  be  drawn  by   a   foreign  bank  or 
banker   for  the  purpose  of   furnishing  dollar  ex- 
change. 


§  212.    Rules  for  Discount  of  Trade  Acceptances 

Federal  reserve  banks  may  purchase  trade  acceptances 
under  the  following  rules  prescribed  by  the  Federal  Reserve 
Board: 

The  bill  must  have  arisen  out  of  an  actual  commercial 
transaction,  domestic  or  foreign;  that  is,  it  must  be  a  bill 
which  has  been  issued  or  drawn  for  agricultural,  industrial, 
or  commercial  purposes  or  the  proceeds  of  which  have  been 
used  or  are  to  be  used  for  the  purpose  of  producing,  purchas- 
ing, carrying  or  marketing  goods  in  one  or  more  of  the 
steps  of  the  process  of  production,  manufacture  or  distribu- 
tion. It  must  have  a  maturity  at  time  of  purchase  of  not 
more  than  ninety  days,  exclusive  of  days  of  grace. 

The  word  "goods"  has  been  construed  as  meaning  goods, 
wares,  merchandise  and  all  agricultural  products  including  live 
stock. 


§  213.'   The  Drawee 

The  drawee  is  not  liable  unless  and  until  he  accepts  the 
bill.  A  bill  may  be  addressed  to  two  or  more  drawees,  but 
not  in  the  alternative,  or  in  succession. 


254 


NEGOTIABLE  INSTRUMENTS 


Where  drawer  and  drawee  are  the  same  person,  or  tne 
drawee  is  fictitious,  or  where  the  instrument  is  ambiguous, 
the  holder  may  consider  the  instrument  either  a  promissory 
note  or  a  bill  of  exchange  at  his  option. 

§  214.    Presentment  for  Acceptance 

Presentment  for  acceptance  must  be  made: 

§  143. — I.  Where  the  bill  is  payable  after  sight  or  in  any 
other  case  where  presentment  for  acceptance  is  necessary  in 
order  to  fix  the  maturity  of  the  instrument;  or 

2.  Where  the .  bill  expressly  stipulates  that  it  shall  be 
presented  for  acceptance;  or 

3.  Where  the  bill  is  drawn  payable  elsewhere  than  at 
the  residence  or  the  place  of  business  of  the  drawee. 

In  no  other  case  is  presentment  for  acceptance  necessary 
in  order  to  render  any  party  to  the  bill  liable. 

Presentment  for  acceptance  follows  the  general  rules  given 
for  presentment  for  payment    (See  Chapter  XXXI.) 

§  215.    Protest  for  Non-Acceptance 

A  foreign  bill  appearing  on  its  face  to  be  such  must  be 
protested  on  the  day  of  its  dishonor  by  non-acceptance,  if  the 
owner  desires  to  hold  the  drawer  and  indorsers. 

§  '53* — ^The  protest  must  be  annexed  to  the  bill,  or  must 
contain  a  copy  thereof,  and  must  be  under  the  hand  and  seal 
of  the  notary  making  it,  and  must  specify: 

1,  The  time  and  place  of  presentment: 

2.  The  fact  that  presentment  was  made  and  the  maimer 
thereof ; 

3,  The  cause  or  reason  for  protesting  the  bill ; 

4.  The  demand  made  and  the  answer  given,  if  any,  or 
the  fact  that  the  drawee  or  acceptor  could  not  be  found. 

§  154. — Protest  may  be  made  by: 

1.  A  notary  public ;  or 

2.  By  any  respectable  resident  of  the  place  where  the 


BILLS  OF  EXCHANGE  AND  ACCEPTANCES         255 

bill  is  dishonored,  in  the  presence  of  two  or  more  creditable 
witnesses. 

§  157— A  bill  which  has  been  protested  for  non-accept- 
ance may  be  subsequently  protested  for  non-payment. 

Acceptance  for  Honor.  An  outside  party  may  accept  or 
pay  a  bill  of  exchange  to  save  the  credit  of  the  drawee.  In 
such  case  the  acceptor  makes  himself  liable,  and  if  he  must 
pay  the  bill,  he  has  a  right  to  be  reimbursed  by  the  person 
who  should  have  paid  it. 

A  bill  payable  in  a  foreign  country  would  be  protested 
according  to  the  law  of  that  country,  and  not  according  to  the 
law  of  the  place  where  the  bill  was  made. 

§216.    Bills  in  a  Set 

§  177— Where  a  bill  is  drawn  in  a  set,  each  part  of  the 
set  being  numbered  and  containing  a  reference  to  the  other 
parts,  the  whole  of  the  parts  constitute  one  bill. 

In  such  a  case,  the  acceptance  should  be  written  on  one 
of  the  sets  and  on  one  part  only.  If  the  drawee  accepts 
more  than  one  part,  he  may  be  held  liable  on  each  part  as 
if  it  were  a  separate  bill. 

Usually,  "where  any  one  part  of  a  bill  drawn  in  a  set  is 
discharged  by  payment  or  otherwise,  the  whole  bill  is  dis- 
charged." 

When  the  acceptor  of  a  bill  drawn  in  a  set  pays  it  with- 
out requiring  the  part  bearing  his  acceptance  to  be  delivered 
up  to  him,  and  the  part  at  maturity  is  outstanding  in  the 
hands  of  a  holder  in  due  course,  he  is  liable  to  the  holder 
thereon. 


9S6 


'fi' 


NEGOTIABLE  INSTRUMENTS 


Review  Questions 


JL« 


A  foreign  bill? 


What  is  a  bill  of  exchange?    An  inland  bill? 
An  acceptance?    A  draft? 

2.  What  is  a  general  acceptance?    A  qualified  acceptance?    What 

is  the  form  of  acceptance?    Its  effect? 

3.  What  is  meant  by  "dollar  acceptances"?     Why  is  the  term 

significant? 

4.  What  is  a  "bankers'  acceptance"  as  defined  by  the  Federal 

Reserve  Board?  What  is  necessary  to  make  a  bankers'  ac- 
ceptance eligible  for  discount  at  a  federal  reserve  bank? 

5.  What  are  domestic  bank  acceptances? 

6.  What  are  trade  acceptances?    What  are  their  functions?    What 

is  necessary  to  make  a  trade  acceptance  eligible  for  discount 
at  a  federal  reserve  bank? 

7.  When   is  presentment   for  acceptance  of  a  bill  of  exchange 

necessary?    What  is  the  effect  if  such  a  bill  is  not  presented? 

8.  What  must  protest  of  a  foreign  bill  of  exchange  specify  in 

order  to  hold  drawer  and  indorsers?  Who  can  protest  a 
bill?  Must  a  bill  payable  in  a  foreign  city  be  protested  by 
the  law  of  the  place  where  it  is  payable  or  by  our  Negotiable 
Instruments  Law? 

9.  When  bills  are  drawn  in  a  set,  what  is  the  duty  of  the  acceptor? 

10.  When  must  bills  of  exchange  be  presented  for  acceptance? 

11.  What  is  the  rule  as  to  protest  of  foreign  bills  of  exchange? 


CHAPTER  XXXVI 

BANK  CHECKS 

§  217.    Definition 

A  check  may  be  defined  as  an  unconditional  order  on  a 
bank  or  a  banker  to  pay  on  demand  a  specified  sum  to  a  person 
named  or  to  his  order,  or  to  the  bearer. 

§  185. — ^A  check  is  a  bill  of  exchange  drawn  on  a  bank, 
payable  on  demand.  Except  as  herein  otherwise  provided, 
the  provisions  of  this  act  applicable  to  a  bill  of  exchange 
payable  on  demand  apply  to  a  check. 

§  2x8.     Checks  as  Evidence  of  Payment 

At  the  present  time  bank  checks  are  used  extensively  as 
a  substitute  for  cash  payments.  Few  business  men  pay  bills 
except  by  check.  If  actual  money  had  to  be  constantly  in 
transfer  from  one  person  to  another,  it  would  limit  the  amount 
of  business  that  could  be  done  at  one  time  as  the  volume 
of  cash  in  circulation  is  not  adequate.  The  use  of  checks 
is  an  elastic  medium  of  exchange  that  meets  any  possible 
demand  of  modem  business. 

The  use  of  checks  for  the  payment  of  debts  affords  the 
very  best  possible  evidence  of  the  fact  of  payment.  A  check 
given  to  pay  a  debt  can  only  be  cashed  by  the  indorsement 
of  the  recipient,  and  his  indorsement  is  the  best  evidence  that 
he  received  the  check  and  collected  the  money.  This  important 
function  has  been  amplified  in  modern  accounting  by  the  use 
of  voucher  checks.  A  voucher  check  contains  a  clear  state- 
ment of  the  exact  obligation  that  the  check  is  intended  to 

257 


asS 


NEGOTIABLE  INSTRUMENTS 


BANK  CHECKS 


I 


I 


pay.  Anyone  who  accepts  a  check  with  the  statement  on  the 
check  of  the  puqx>se  to  which  the  payment  is  to  be  appHed 
is  estopped  thereafter  from  applying  the  payment  to  any  other 
obligation  or  indebtedness.  These  checks  are  found  in  many 
forms. 

The  chief  difference  between  an  ordinary  bill  of  exchange 
and  a  check  is  that  the  latter  is  always  drawn  on  a  bank  and 
is  always  payable  on  demand.  In  addition,  these  points  of 
difference  are  to  be  noted: 

1.  Grace  is  not  allowed  on  a  check. 

2.  The  check  must  be  drawn  on  funds  actually  in  the 

bank. 

3.  The  death  of  the  drawer  of  a  check  revokes  it. 

§  aig.    Signature  of  Drawer 

The  signature  of  the  drawer  is  necessary,  but  it  need  not 
be  placed  at  the  bottom  of  the  instrument.  The  order  may 
be  written  under  the  signature,  or  some  form  such  as  "I, 
Henry  Adams,  direct  you  to  pay  to,  etc.,"  may  be  used.  The 
bank  will  have  the  signature  on  file  and  will  be  able  to  verify 
it  in  whatever  form  it  occurs. 

§  220.    Presentment  for  Pajonent 

§  186. — ^A  check  must  be  presented  for  payment  within  a 
reasonable  time  after  its  issue  or  the  drawer  will  be  dis- 
charged from  liability  thereon  to  the  extent  of  the  loss 
caused  by  the  delay. 

Thus  if  the  holder  keeps  the  check  two  weeks,  and  the 
bank  fails  before  the  check  is  presented,  the  liability  of  the 
drawer  will  be  reduced  in  proportion  to  his  total  loss.  That 
is,  if  the  bank  paid  depositors  only  forty  cents  on  the  dollar, 
the  holder  of  the  check  would  be  able  to  get  only  40  per  cent 
of  its  amount  from  the  drawer.     The  courts  will  hold  that 


259 


the  other  60  per  cent  was  lost  to  the  holder  by  his  own  un- 
reasonable delay.  That  is,  the  drawer  is  discharged  from  his 
liability  to  the  holder  only  to  the  extent  of  the  actual  loss 
caused  by  the  delay. 

If  the  check  must  be  sent  to  another  place  for  collection, 
it  should  be  started  on  the  day  following  its  receipt,  and 
should  go  by  a  reasonably  direct  route.  In  some  states  it  has 
been  held  that  unreasonable  delay  is  caused  by  sending  a  check 
over  an  indirect  route  through  various  correspondent  banks. 

§221.    Bank's  Relations  with  Depositor 

The  depositor  in  effect  lends  money  to  the  bank,  and  the 
bank  promises  to  repay  it  on  demand.  The  bank  is  in  no  sense 
a  trustee,  unless  there  has  been  an  express  agreement  to  that 
effect. 

The  bank  may  charge  against  a  depositor's  account  any 
notes  of  his  which  it  holds  and  which  are  due.  If  the  depositor 
has  made  an  overdraft,  the  bank  may  apply  subsequent  deposits 
against  it.  A  bill  or  note  made  payable  at  a  bank  authorizes 
the  bank  to  pay  it  when  due  out  of  the  depositor's  account. 

If  the  funds  of  a  depositor  on  hand  are  not  enough  to 
pay  a  check  in  full,  the  bank  need  not  pay  it  in  part,  but  it 
may  legally  do  so. 

If  the  bank  wrongfully  refuses  payment  of  a  check,  the 
drawer  may  sue  for  damages.  If  he  is  a  business  man  and 
can  prove  that  his  credit  has  actually  been  injured,  he  may 
recover  a  substantial  sum. 

In  general  practice,  a  bank  does  not,  except  by  special 
arrangement,  take  checks  of  depositors  for  collection,  but 
accepts  them  outright  for  deposit.  By  this  method  the  de- 
positor is  able  to  draw  checks  against  his  deposits  without 
waiting  until  the  bank  has  made  sure  that  they  can  be  collected. 
On  the  other  hand,  if  the  depositor  does  not  wait  a  reasonable 
time  for  the  collection  of  the  checks  he  has  deposited  before 


36o 


KEGOTIABLE  INSTRUMENTS 


drawing  against  them,  the  bank  may  legaUy  refuse  to  honor 
his  checks. 

If  a  depositor  gives  a  check  dated  some  days  ahead  and 
It  IS  presented  to  the  bank  before  its  date,  the  bank  wiU  pay 
It  or  certi  fy  it  at  its  own  peril. 

§  aaa.    Bank's  Relations  with  Holder 

§  i^.— A  check  of  itself  does  not  operate  as  an  assign- 

"^TuX  ^\  •*""  "^  ""*  ^""'•^  *°  ^"^  "«"t  of  the  drawer 
w,th  the  bank,  and  the  bank  is  not  liable  to  the  holder  unless 
and  until  it  accepts  or  certifies  the  check. 

The  holder  of  an  uncertified  check  has  ordinarily  no  riehts 
against  the  bank.  If  the  bonk  refuses  to  pay  when  it  has 
funds  of  the  drawer  on  hand,  the  depositor  may  sue  the  bank 
for  damages  to  his  credit,  but  the  holder's  recourse  is  only 
against  the  drawer  of  the  check. 

•II  ^r""  '^-^^  ^"^  ^"^^  ***  *^^  *«*  *as  given  for  an 
dlegal  considerauon.  as  in  payment  of  a  wager,  the  bank  must 
^di  It.  and  the  drawer  win  have  no  claim  against  the  bank 
for  so  doing.  The  bank  will  pay  checks  in  the  order  of 
Aeir  presentment    If  two  or  more  checks  are  presented  at 

X^^  ^^  "^^  ^^  ^  ^^^''''  °"^^'  '* 

§22$,    Revocation 

..a'^\uT^I  ''^  *.'  "^^'  *°  ^**'P  P^y""'*  °"  »  check, 
and  If  Ae  bank  pays  die  check  after  it  has  been  notified  no 

to  do  so.  It  win  be  liable.    The  drawer  alone  has  a  legal  righ 

b^ws  of  fraud  ought  to  mform  the  bank  at  once  if  he  camiot 
reach  the  drawer  In  such  a  case  the  bank  will  probably 
delay  payment  of  the  check  until  the  matter  has  bee^ 
cleared  up.  ^ 

Even  though  the  drawer  is  successful  in  stopping  payment 


BANK  CHECKS 


261 


of  a  check,  he  will  be  liable  to  an  innocent  holder  for  value 
if  the  indorsements  are  proper. 

After  a  check  has  been  certified,  payment  may  not  or- 
dinarily be  stopped. 

The  death  of  the  drawer  will  revoke  a  check,  but  the  bank 
must  have  notice,  on  the  general  principle  that  agency  ceases 
only  after  the  agent  has  received  notice.  Insolvency,  when 
the  bank  is  notified  of  it,  also  acts  as  a  revocation. 

§  224.    Certification 

When  a  bank  certifies  a  check,  it  assumes  the  obligation 
formerly  held  by  the  drawer.  The  bank  will  not  certify  unless 
it  accepts  the  signature  of  the  drawer  as  correct,  and  unless 
it  has  funds  of  the  drawer  on  hand  with  which  to  pay;  and 
as  soon  as  it  certifies  it  sets  aside  the  proper  amount  from  the 
drawer's  account  and  holds  it  for  the  holder  of  the  check. 
Under  the  Negotiable  Instruments  Law  certification  must  be 
in  writing.  There  is  no  legal  obligation  on  a  bank  to  certify 
any  check  for  anybody.  It  is  a  matter  of  courtesy  and  con- 
venience. 

§  187. — Where  a  check  is  certified  by  the  bank  on  which 
it  is  drawn,  the  certification  is  equivalent  to  an  acceptance. 

§  188. — Where  the  holder  of  a  check  procures  it  to  be 
accepted  or  certified,  the  drawer  and  all  indorsers  are  dis- 
charged from  liability  thereon. 

Acceptance  or  certification  of  a  check  discharges  the 
drawer,  but  if  the  drawer  takes  his  own  check  to  the  bank 
for  certification,  he  still  remains  secondarily  liable,  in  case  the 
certification  be  refused  for  any  reason,  or  the  bank  becomes 
insolvent. 

If  a  bank  becomes  insolvent,  the  holder  of  a  certified  check 
simply  ranks  among  the  other  creditors. 


362 


NEGOTIABLE  INSTRUMENTS 


BANK  CHECKS 


263 


§  335-    Fraud 

The  bank's  agreement  with  the  depositor  is  that  it  will 
pay  out  money  on  his  account  only  on  his  order.  If  it  honors 
a  forged  signature,  therefore,  it  must  bear  the  loss.  But  in 
New  York,  if  a  bank  is  not  notified  within  one  year  after 
the  return  of  a  forged  or  raised  check  it  cannot  be  held  liable. 
The  bank's  liability  is  to  the  drawer,  not  to  the  payee  or 
subsequent  indorsers. 

The  drawer  cannot  hold  the  bank  for  a  loss  if  he  has  been 
negligent  in  drawing  the  check  or  has  delivered  the  check  to 
the  wrong  person,  or  if  he  has  signed  and  allowed  to  go  into 
circulation  a  check  with  unfilled  blanks,  or  if  he  has  so 
negligently  filled  in  a  check  that  insertions  might  readily  be 
made.  The  depositor  should  always  examine  his  pass-book 
and  vouchers  carefully,  and  report  promptly  any  errors  he  may 
discover.  The  bank  will  not  be  liable  to  a  drawer  whose  acts 
amount  to  acquiescence  in  what  the  bank  has  done. 

If  a  raised  check  is  paid  by  a  bank,  it  must  bear  the  loss 
as  against  the  drawer,  unless  his  negligence  in  filling  in  the 
amounts  made  possible  the  forgery.  As  against  the  person  to 
whom  the  money  has  been  paid,  the  bank  must  bear  the  loss 
unless  he  was  a  party  to  the  forgery  or  unless  he  can  return 
the  money  to  the  bank  without  making  his  situation  worse 
than  it  would  have  been  had  the  bank  refused  payment.  That 
is,  if  the  payee  has  not  yet  done  anything  that  he  would  not 
have  done  if  payment  had  been  refused,  the  bank  may  recover. 
In  most  cases,  however,  he  will  have  "delivered  goods,  given 
up  security  or  otherwise  have  done  something  that  he  would 
not  have  done  if  the  bank  had  refused  payment. 

If  the  amount  is  altered  and  the  bank  pays  out  money  in 
gfood  faith,  it  will  be  able  to  recover  from  the  one  who  got 
the  money.  Even  in  case  of  alteration  before  certification, 
the  bank  will  be  able  to  recover  from  the  one  to  whom  payment 
was  made.    In  case  a  check  is  raised  after  certification,  if  the 


bank's  carelessness  was  not  responsible  for  the  alteration  or 
the  payment,  it  will  be  able  to  recover  the  excess  paid  from 
an  innocent  holder  to  whom  it  paid  the  raised  amount.  Re- 
covery is  allowed  in  these  cases  because  the  bank  is  not  sup- 
posed to  warrant  the  body  of  the  instrument  by  certifying  it, 
but  only  the  drawer's  signature,  the  sufficiency  of  the  funds, 
the  existence  of  the  payee  and  his  capacity  to  indorse.  In 
New  York  and  Pennsylvania  the  bank's  certification  is  a 
warrant  only  of  the  signature  and  the  funds. 

The  bank  after  certifying  a  check  will  be  liable  to  a  holder 
in  good  faith,  even  though  the  funds  are  insufficient  or  the 
signature  is  forged.  It  will  be  liable  also  to  such  a  holder 
even  though  the  payee  is  fictitious  or  the  blanks  fraudulently 
filled.  If  a  certified  check  has  been  stolen  or  lost,  even  though 
advertised,  a  holder  in  good  faith  will  be  able  to  recover. 

An  overdraft  is  not  usually  a  criminal  offense.  If  a  man 
draws  a  check  out  with  intent  to  defraud  and  with  knowledge 
that  he  has  no  right  to  draw  on  the  bank  for  the  amount  he 
does,  he  is  guilty  of  stealing  and  is  punishable  accordingly. 

§  226.    Checks  as  Gifts 

If  a  check  is  given  as  a  present,  it  will  be  valid,  and  sub- 
ject to  the  defense  of  no  consideration  only  as  between  the 
donor  and  donee.  A  check  given  as  a  gift  causa  mortis 
if  not  cashed  or  certified  before  the  death  of  the  donor,  is 
revoked. 


I. 


2. 


3- 


Review  Questions 

Prepare  a  voucher  check  which  is  a  negotiable  instrument  and 
evidence  of  the  payment  of  a  particular  account  or  obligation. 

What  liability,  if  any,  does  a  bank  assume  in  paying  a  check  to 
a  holder  who  claims  under  a  forged  indorsement? 

The  maker  of  a  promissory  note  sends  the  payee  his  check  for 
the  amount  on  the  day  of  maturity.    The  payee  has  the  check 


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NEGOTIABLE  INSTRUMENTS 


I 


certified  at  the  bank,  but  before  it  is  paid  the  bank  fails.  Is 
the  maker  relieved  of  liabUity  on  the  note  by  such  certification? 
Give  reasons  for  your  answer. 

4.  A  bank  certified  a  check  that  had  been  altered  by  changing  the 

date,  name  of  payee,  and  raising  the  amount,  and  the  bank 
subsequently  paid  the  same  to  the  defendant.  Thereafter 
the  bank  sued  the  defendant  for  the  amount  thus  paid.  Can' 
tt  recover?  Or  does  its  certification  of  the  check  amount 
to  a  warranty  of  the  genuineness  of  the  body  of  the  check 
as  to  payee  or  amount?    Explain. 

5.  Is  a  depositing  and  checking  customer  of  a  bank  obliged  to 

verify  the  balance  shown  by  pass-book  and  vouchers? 
4  A  retailer  received  a  check  for  some  goods.  Before  delivering 
them  he  telephoned  the  bank,  and  was  told  that  the  check 
was  good.  When  he  presented  it  for  payment  several  hours 
later  he  found  that  other  checks  had  been  presented  in  the 
interval,  and  that  the  bank  refused  to  honor  his  on  the 
ground  of  insufficient  funds  in  the  depositor's  account.  Could 
the  retailer  rely  on  the  telephoned  approval  of  the  bank  as 
a  certification? 

7.  How  should  a  check  be  sent  by  mail  for  collection?  May  the 
holder  of  an  uncertified  check  sue  the  bank?  If  a  bank 
wrongfully  dishonors  a  check,  has  the  drawer  any  remedy? 

&  What  IS  the  liability  of  the  parties  to  a  certified  check?  If  a 
bank  pays  a  check  drawn  on  it  by  a  depositor,  after  payment 
has  been  stopped,  can  the  depositor  recover  the  amount  so 
paid? 

9.  In  your  state  what  is  the  statutory  limitation  to  a  bank's  liability 
for  payment  of  a  forged  or  raised  check  after  its  return  to 
a  depositor?  Liability  of  a  bank  for  payment  of  a  check 
after  drawer's  death? 

Drawer  of  check  has  it  certified,  gives  it  to  payeg.    Next  day 

bank  fails.    Can  payee  collect  from  drawer? 
On  the  morning  of  January  5,  A  gave  B  a  check  for  $100  on 

account     On  the  evening  of  January  7  the  bank  suspends 

payment.    B  has  not  yet  presented  the  check.    Is  A's  debt 

cancelled? 


10. 


II. 


PART  VI 
INSURANCE 


L 


\  I 


CHAPTER  XXXVII 

FIRE  INSURANCE 


§227.    The  Parties 

Insurance  is  a  contract  by  one  or  more  parties  to  indemnify 
another  for  some  loss  which  he  may  suffer  in  the  future.  If 
there  is  no  loss,  the  agreement  does  not  have  to  be  carried  out. 
The  consideration  is  the  premium  paid.  The  written  contract 
is  called  the  policy. 

Insurance  is  of  various  kinds.  Fire,  life,  and  marine  in- 
surance are  the  oldest  forms  of  insurance.  In  addition,  there 
have  grown  up  accident  insurance,  burglary  insurance,  boiler, 
plate  glass,  and  tornado  insurance,  credit,  fidelity,  title,  and 
liability  insurance,  and  other  special  forms  of  insurance  too 
numerous  to  mention. 

There  are  two  parties  to  a  contract  of  fire  insurance,  the 
insured  and  the  insurer.  The  person  whose  property  is  insured 
is  called  the  insured.  The  person  or  company  who  insures  it 
is  called  the  insurer. 

The  insurer  may  be  a  single  individual,  or  a  corporation, 
or  an  unincorporated  company ;  or  a  group  of  individuals  may 
get  together  and  insure  themselves.  This  last  system  of  in- 
surance is  called  mutual  insurance.  It  is  quite  common  in 
the  country  districts,  where  there  may  be  a  township  mutual 
insurance.  Whenever  a  fire  occurs  all  the  members  of  the  fund 
are  assessed  proportionately  to  pay  the  loss. 

In  the  non-mutual  companies  a  fund  is  created  by  the  pay- 
ment of  premiums,  out  of  which  the  insurer  pays  for  the 
losses  which  may  occur. 

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f 


§  aa8.    Nature  of  the  Contract 

The  contract  of  fire  insurance  is  a  speculative  one;  that 
IS  to  say  the  event  on  the  happening  of  which  the  payment  is 
to  be  made,  namely,  the  fire,  may  never  happen.  The  person 
msunng  the  buildmg  must  himself  have  some  actual  financial 
interest  m  the  property  insured,  otherwise  it  would  amount 
merely  to  a  bet  on  his  part  as  to  whether  the  building  would 
be  destroyed  by  fire  or  not,  and  would  be  a  gambling  contract 

Ta  "K"  -.^  °  '^  *'  '"'"'"'^  •'^^  °°  '"'"«t  i"  the  building, 
and  the  bu.M.ng  were  destroyed  by  fire,  it  would  be  to  his 

prow,  and  such  an  inducement  might  lead  to  crime. 
Note: 

I.  The  exact  interest  of  the  person  insured  in  the  prop- 
erty should  always  be  made  a  part  of  the  policy, 
to  show  that  the  contract  is  legal. 

§  aag.    Agents 

Most  insurance  is  taken  out  through  agents.    These  may 
be  of  two  kmds:  those  who  are  paid  by  the  company  and  are 
tile  agents  of  the  company,  and  those  who  act  merely  as 
brokers  and  solicit  insurance  for  various  companies.    Agents 
acting  for  the  company  bind  the  company  by  their  agreements 
If  they  have  the  power  to  close  contracts  of  insurance.    If  the 
contract  is  required  to  be  sent  first  to  the  company  for  its 
approval,  any  agreement  of  the  agent  wffl  not  bind  the  com- 
pany    Sometimes,  by  means  of  a  short  written  agreement 
rafled  a  binder,  or  even  by  an  oral  contract,  an  agent  may 
bind  his  company  for  a  certain  Umited  or  contingent  period 
as  for  mstance,  until  the  poUcy  is  made  out  or  while  the 
company  is  investigating  the  risk. 

The  laws  of  the  various  states  are  very  strict  with  reeard 
to  insurance  agents.  In  most  of  them  an  agent  must  receive 
a  hcense  from  the  state  superintendent  of  insurance,  or  what- 


ever  officer  exercises  corresponding  duties,  in  order  to  be 
permitted  to  act. 

Notes: 

1.  In  dealing  with  an  insurance  agent,  always  find  out 

whether  the  company  has  to  approve  his  agree- 
ments before  relying  on  any  changes  he  offers  to 
make  in  the  policy,  etc.  It  is  always  safer  to  get 
the  authorization  of  the  company  itself. 

2.  If  you  wish  to  act  as  an  insurance  agent,  look  up 

the  law  to  see  if  you  must  take  out  a  license. 

3.  If  you  deal  through  a  broker  instead  of  an  agent  of 

the  insurance  company,  the  broker  is  your  agent. 

§  230.    The  Policy 

Policies  may  be  either  open  or  valued.  Most  fire  insurance 
policies  are  open.  In  an  open  policy  the  amount  payable  in 
case  of  loss  is  not  fixed  by  the  policy  but  merely  the  limit 
up  to  which  the  company  will  be  liable.  Then  when  a  fire 
occurs  the  company  pays  the  actual  value  of  the  loss  up  to 
^he  amount  named  in  the  policy.  A  valued  policy,  on  the 
other  hand,  specifies  the  amount  payable  in  the  event  of  a  total 
loss.    Life  insurance  policies  are  valued. 

It  is  a  legal  maxim  that  "to  include  is  to  exclude"  and  the 
insurance  policy  covers  only  what  is  stated  therein.  Some 
states  allow  oral  agreements  with,  or  representations  made 
by,  agents  to  be  proved  in  order  to  alter  the  policy,  but  others 
do  not.  If  it  is  desired  to  make  other  agreements  not  included 
in  the  policy  form,  they  may  be  made  in  written  form  and 
made  a  part  of  the  policy  by  referring  to  them  in  the  policy. 

Standard  Forms  of  Policies.  New  York,  Massachusetts, 
and  some  other  states  have  a  standard  form  of  policy,  which 
by  law  must  be  used  by  all  insurance  companies.  Massachu- 
setts adopted  this  form  in  1881 ;  New  York  in  1887.  The 
Massachusetts  form  provides  that  a  building  must  not  be  left 


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271 


unoccupied  for  thirty  days  or  the  insurance  will  lapse.  In  New 
York  it  must  not  be  left  for  over  ten  days.  In  addition,  the 
New  York  form  contains  certain  stipulations,  including  the 
following: 

The  company  may  replace  or  repair  the  property  instead 
of  paying  the  loss  and  may  take  damaged  property  by  paying 
the  full  appraised  value  for  it  It  does  not  hold  itself  liable 
under  certain  circumstances,  such  as  war  or  riot,  usurped 
power,  or  destruction  by  order  of  civil  or  military  authority; 
likewise  it  is  released  by  the  neglect  of  the  insured  to  use  all 
reasonable  means  to  save  his  property  when  it  is  menaced  by 
neighboring  flames.  It  is  not  liable  if  the  insured  made  any 
false  representations  or  practiced  any  kind  of  fraud  in  pro- 
curing the  contract.  The  policy  does  not  cover  such  things 
as  deeds,  book  accounts,  and  shares  of  stock,  etc.,  which  merely 
represent  obligations  to  the  insured,  nor  does  it  cover  money. 
It  does  not  cover  a  building  after  it  or  part  of  it  has  fallen 
from  any  cause  other  than  fire.  These  provisions  may  not 
be  altered. 

If  a  building  is  left  vacant  for  ten  days,  or  a  factory  runs 
after  ten  o'clock  at  night  or  is  shut  down  for  more  than  ten 
consecutive  days,  the  policy  becomes  of  no  effect,  unless  the 
policyholder  shall  have  obtained  a  permit  from  the  insurance 
company.  This  permit  must  be  in  proper  form  and  must 
be  attached  to  the  policy.  Any  changes  in  the  use  or 
occupation  of  a  building,  or  the  installation  of  such  things 
as  electrical  wires,  gasoline  stoves,  etc.,  must  be  consented  to 
by  the  company  or  the  policy  is  void.  In  the  absence  of  a 
provision  to  that  effect,  a  policy  is  not  nullified  by  the  erection 
of  neighboring  buildings  that  increase  the  risk. 
•  A  common  clause,  known  as  "builder's  risk"  provides  that 
mechanics  such  as  gasfitters,  plumbers,  etc.,  may  not  be  en- 
gaged to  work  upon  a  building  without  the  consent  of  the 
company. 


For  the  use  or  storage  of  inflammable  or  explosive  sub- 
stances, such  as  paint  and  gunpowder,  in  an  insured  building, 
a  special  permit  is  necessary. 

The  policy  does  not  cover  certain  enumerated  articles, 
such  as  jewelry,  curios,  office  furniture,  architects'  plans,  etc., 
unless  they  are  expressly  mentioned  in  the  policy. 

What  the  Policy  Should  Include.  Every  policy  of  fire  in- 
surance should  include  as  full  and  accurate  a  description  of 
the  property  covered  as  possible.  It  should  also  include  the 
amount  for  which  the  insurance  is  taken  out,  the  term  for 
which  the  policy  is  to  last,  the  rate  of  premiums  and  at  what 
time  payable,  and  any  other  conditions  which  the  parties  wish 
to  make  a  part  of  the  agreement.  Personal  property  must  be 
described  as  located  at  such  and  such  a  place;  and  if  it  is 
moved,  a  new  policy  must  be  taken  out  or  the  original  policy 
extended  to  cover  it,  as  the  character  of  the  building  in  which 
it  is  kept  affects  the  risk  very  materially. 

Cancellation.  A  fire  insurance  policy  may  be  cancelled  by 
either  party  upon  five  days'  notice ;  a  proportionate  amount  of 
the  premium  paid  being  returned  to  the  insured  when  the  com- 
pany makes  such  cancellation. 

Notes: . 

1.  Everything  you  want  included  in  the  agreement 

should  be  put  in  writing  and  incorporated  in  the 
policy. 

2.  If  the  policy  is  a  standard  policy  and  the  company's 

permission  is  obtained  to  make  any  changes  in  it, 
these  should  be  in  writing  and  made  a  part  of  the 
policy  by  a  reference  in  it  to  the  changes. 

§231.    Prwniums 

The  premiums  are  the  consideration  the  insured  pays  for 
the    agreement    to    insure    his    property.      They    are    based 


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273 


! 


on  a  certain  percentage  of  the  amount  for  which  the  property 
is  insured  and  are  payable  periodically,  generally  either  annu- 
ally or  semiannually.  A  failure  to  pay  a  premium  when  it  is 
due  causes  the  policy  to  lapse  and  be  forfeited,  but  the  com- 
pany may  consent  to  an  extension  of  the  time  for  its  payment 
or  may  agree  to  take  notes  for  the  payment  of  premiums. 

Note: 

I.  If  an  extension  of  time  is  procured  for  the  payment 
of  a  premium,  it  is  safest  to  have  it  in  writing. 
Make  your  application  for  the  extension  by  letter, 
retain  copy,  and  enclose  postage  for  a  reply.  The 
company's  letter  will  be  your  protection. 

§  232.    The  Property  Insured 

The  property  insured  may  be  either  real  or  personal.  A 
policy  may  cover  both,  as  for  instance  a  dwelling-house  and 
furniture.  A  policy  made  out  to  cover  "merchandise"  or 
"household  goods"  will  cover  such  as  may  be  acquired  later 
as  well  as  those  which  the  insured  owns  at  the  time  of  taking 
out  the  policy. 

Insurable  Interest  The  party  who  insures  a  property  must 
have  what  is  known  as  an  insurable  interest  in  it.  He  may 
either  own  the  property  outright,  or  have  some  claim  upon  it, 
such  as  a  lien  or  mortgage.  The  standard  form  of  policy  in 
New  York  provides  that  the  insured  must  be  the  sole  and 
absolute  owner  of  the  property,  free  from  any  claims  of  anyone 
else,  but  anyone  who  is  not  the  sole  and  absolute  owner  may 
insure  his  interest  with  the  company's  consent. 

If  a  mortgagee  or  trustee  wishes  to  take  out  a  policy,  a 
clause  must  be  inserted  that  the  loss  shall  be  payable  "as  his 
-interest  may  appear."  The  company's  consent  must  also  be 
obtained  to  a  chattel  mortgage,  or  the  policy  will  be  void. 

A  man  who  insures  another's  property  has  an  insurable  in- 
terest therein  and  may  protect  himself  by  reinsuring  it. 


A  man  may  have  an  insurable  interest  in  property  which 
he  does  not  own  at  all.  Thus  a  salaried  agent  whose  employ- 
ment is  contingent  upon  the  continued  existence  of  a  given 
property,  may  insure  it.  But  the  value  of  his  indirect  interest 
must  somehow  be  determined  and  agreed  to  by  the  insurer  and 
the  insured.  In  like  manner,  a  stockholder  of  a  corporation 
has  an  interest,  real  though  difficult  to  determine,  in  the  prop- 
erty of  the  corporation. 

Alienation.  Any  change  in  ownership  or  possession  of 
property,  including  sale  for  taxes  or  under  a  lien,  will  make 
it  necessary  to  assign  immediately  the  policy  to  the  new  owner, 
unless  he  chooses  to  take  out  a  new  policy.  Assignment  must 
be  with  the  consent  of  the  insurance  company  and  recorded  on 
the  company's  books. 

What  May  Be  Insured.  Any  kind  of  tangible  property 
may  be  insured.  Deeds,  bonds,  shares  of  stock,  book  accounts, 
bank  notes,  promissory  notes,  and  bills  of  exchange,  etc.,  are 
not  insurable.  These  merely  represent  an  interest  which  the 
party  has  in  some  property  and,  if  they  are  destroyed,  the 
claim  may  be  proved  by  witnesses  without  them.  Money  may 
not  be  insured ;  the  United  States  Treasury  will  redeem  what 
remains  of  it. 

What  May  Be  Insured  Against.  A  fire  insurance  policy 
insures  for  damages  other  than  those  caused  by  actual  flames. 
Injury  due  to  the  heat  of  a  fire  in  an  adjoining  building  would 
be  recompensed,  as  would  also  damage  caused  by  the  means 
used  to  extinguish  a  fire,  or  damage  caused  by  removing  the 
goods  to  a  place  of  safety  even  though  it  later  developed 
that  such  moving  need  not  have  been  done.  To  insure 
against  damage  by  lightning  where  there  was  no  actual 
ignition,  a  special  lightning  clause  must  be  attached  to  the 
policy. 

Floating  Stock.  A  merchant  may  insure  his  stock  with  the 
understanding  that  it  is  to  be  replaced  by  other  material  of  the 


274 


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275 


i|! 


t  I 


I 


same  kind.  His  policy  would  be  known  as  a  floating  one,  and 
in  case  of  damage,  he  may  recover  on  the  stock  on  hand  when 
the  fire  occurred,  regardless  of  what  stock  was  on  hand  when 
the  policy  was  issued. 

Coinsurance.  A  coinsurance  clause  stipulates  that,  in  re- 
turn for  a  reduced  rate,  the  insured  must  insure  his  property 
lip  to  a  certain  percentage  of  its  value,  usually  80  per  cent, 
and  if  he  fails  in  so  doing  he  must  himself  bear  a  proportion 
of  any  loss,  thus  making  him  ?  coinsurer  with  the  company 
of  his  own  property. 

For  instance,  if  his  property  were  worth  $10,000,  an  80  per 
cent  coinsurance  clause  would  obligate  him  to  carry  insurance 
to  the  amount  of  $8,000.  If  he  carried  only  $6,000  and  a  loss 
occurred,  he  would  be  paid  only  such  a  proportion  of  his  loss  as 
the  insurance  he  carried  bore  to  the  amount  he  agreed  to  carry, 
in  this  case  three-fourths.  Therefore,  if  fire  damaged  his 
property  to  the  extent  of  $4,000,  he  would  receive  only  three- 
fourths  of  this  amount,  or  $3,000. 

Reinsurance.  For  the  better  distribution  of  risks,  a  com- 
pany after  writing  a  policy  often  insures  itself  for  the  whole 
or  a  part  of  the  risk  it  has  just  insured.  If  then,  the  original 
insurer  has  to  pay,  the  reinsurer  is  liable  to  the  insurer  for 
the  amount  paid,  or  for  the  proportionate  part  of  it,  as  may 
have  been  agreed.  The  insurer  may  not  reinsure  for  more 
than  the  original  policy.  The  amount  to  be  paid  by  the  rein- 
surer is  the  amount  the  insurer  has  to  pay,  or  a  part  of  it, 
with  one  exception.  If  the  reinsurer  pays  the  claim  of  the 
insurer  before  the  claim  of  the  insured  is  settled,  then  it  does 
not  matter  to  the  reinsurer  what  terms  the  insurer  makes  with 
the  insured.  If  the  insurer  becomes  insolvent,  makes  a  final 
settlement  and  is  discharged,  he  will  receive  from  his  reinsurer 
only  what  he  paid.  But  when  the  insured  has  been  paid  off, 
then  the  other  creditors  can  have  no  claim  on  what  is  due 
the  insurer  from  the  reinsurer  unless  the  reinsurance  has  been 


taken  into  account  in  making  the  calculations  of  dividends 
under  which  the  insured  was  paid. 

Notes: 

1.  In  changing  the  location  of  personal  property  always 

be  sure  to  take  out  a  new  policy. 

2.  In  buying  buildings  of  any  kind,  the  first  thing  to  do 

is  to  arrange  for  their  insurance. 

3.  A  person  living  in  a  house  for  which  he  is  paying 

by  instalments  has  an  insurable  interest  in  it. 

§  235.    Warranties  and  False  Representations 

False  representations  are  misstatements  made  to  the  com- 
pany and  its  agents  when  applying  for  the  policy,  or  after- 
wards as  to  any  change  in  the  condition  of  the  property  of 
which  the  company  has  a  right  to  know.  If  such  misstate- 
ments materially  affect  the  policy  they  will  render  it  void. 

Concealment  is  the  suppression  of  any  material  facts  which 
the  insurer  does  not  know  or  is  not  presumed  to  know.  Such 
suppression  may  be  of  the  fact  at  the  time  application  is  made 
or  of  some  later  change  in  the  condition  which  the  insurer 
ought  to  know. 

Any  fact  is  material  that  might  properly  influence  the 
insurer  in  taking  or  refusing  the  risk  or  that  would  affect 
the  amount  of  the  premium  charged. 

Warranties  are  representations  which  are  included  in  the 
policy.  They  may  consist  in  answers  to  a  schedule  of  questions 
which  are  attached  to  the  policy  and  made  a  part  of  it.  If  any 
of  the  warranties  are  false  the  policy  is  of  no  value.  Even  an 
inaccurate  statement  made  through  an  honest  mistake,  if  it  is 
made  a  part  of  the  policy,  renders  it  useless. 

Other  Insurance.  Misstatements  as  to  other  insurance 
where  the  policy  is  of  the  standard  form  will  render  it  of  no 
effect  whether  they  are  warranties  or  mere  representations. 


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Increasing  the  insurance  on  the  property  increases  the  tempta- 
tion to  be  careless  or  to  have  "accidental"  fires,  and  the  law  is 
strict  that  the  company  must  know  of  and  consent  to  insurance 
on  the  property  in  any  other  company.  Where  a  property  is 
covered  by  policies  in  different  companies,  any  one  insurer  is 
liable  only  for  the  proportion  of  the  loss  that  his  policy  bears 
to  the  total  amount  of  insurance. 

Notes: 

1.  Be  very  careful  to  make  only  the  most  accurate 

statements  in  answer  to  any  schedule  of  questions 
to  be  filled  out  in  making  application  for  the 
policy.  If  these  statements  are  wrong,  and  the 
schedule  is  attached  to  and  made  a  part  of  the 
policy,  your  policy  may  be  of  no  value. 

2.  To  conceal  matters  material  to  the  risk  may  avoid 

the  policy. 

§  234.    Settlement  of  Losses 

When  a  loss  occurs  the  insured  must  at  once  notify  the 
company  and  then  make  out  an  inventory  of  the  damaged 
property,  stating  the  value  of  each  article  separately.  This  in- 
ventory must  be  sworn  to.  The  New  York  standard  policy 
gives  the  company  the  option  to  require  that  it  be  confirmed  by 
the  certificate  of  a  magistrate  or  of  a  notary  public.  In  this 
inventory  the  insured  must  state  if  there  are  any  other  claims 
against  the  property;  or,  if  it  is  partly  owned  by  others,  who 
they  are  and  what  is  their  interest  in  it,  and  what,  to  the  best 
of  his  knowledge,  was  the  cause  of  the  fire. 

The  company  usually  sends  out  an  adjuster  to  investigate 

'  the  loss.    He  must  be  shown  all  the  damaged  property  and 

any  papers  relating  to  its  value,  or  plans,  specifications,  etc., 

which  would  aid  in  determining  the  value  of  the  property 

destroyed.    The  insured  must  be  ready  to  submit  to  any  ex- 


FIRE  INSURANCE 


277 


aminations  which  the  company  may  wish  to  make  and  to  make 
any  relevant  affidavits  it  may  require. 

If  the  insured  and  the  company  cannot  agree  on  the  amount 
necessary  to  cover  the  loss,  the  company  and  the  insured  each 
appoint  one  appraiser  and  the  two  go  over  the  property  and 
value  it.  They  select  an  umpire  who  decides  between  them  in 
case  there  is  any  dispute  as  to  the  proper  valuation.  Their 
decision  settles  the  amount  which  the  company  is  liable  to  pay. 

A  mortgagee  has  the  right  to  recover  from  the  insurance 
company  whatever  is  due  him  under  the  mortgage  at  the  time 
of  the  damage,  provided  of  course  the  face  of  the  policy  covers 
the  amount  due  and  that  the  policy  bears  the  customary  mort- 
gagee clause.  This  right,  however,  does  not  run  with  the 
land.  That  is,  if  the  mortgagor  sells  the  property  subject  to 
the  mortgage,  the  buyer,  who  assumes  the  mortgage,  may 
insure  it  without  the  mortgagee's  having  any  interest  in  the 
policy.  But  if  the  buyer  insures  it,  making  the  loss  payable 
to  the  mortgagee,  he  may  not  revoke  or  cancel  the  insurance 
without  the  mortgagee's  consent.  In  the  same  way,  if  a  policy 
taken  out  by  the  owner,  is  made  payable  to  the  mortgagee 
as  his  interest  may  appear,  his  rights  cannot  be  destroyed 
by  any  act  of  the  owner.  If  the  owner  assumes  to  accept  a 
settlement  of  a  claim  without  the  mortgagee's  consent,  he  will 
not  be  bound  by  it. 

Options  Which  the  Company  May  Exercise,  Under  the 
standard  policy  in  New  York,  the  company  has  the  right  to 
replace  or  repair  the  property  instead  of  paying  for  the  loss. 
Or  it  may  take  the  property  on  paying  the  appraised  value  for 
it.  If  the  property  is  capable  of  being  repaired,  the  company 
pays  only  the  amount  which  is  adjudged  necessary  to  restore 
it  to  its  former  condition. 

If  the  insured  has  any  claims  against  persons  other  than 
the  company  for  the  value  of  the  property,  he  must  transfer 
them  to  the  company  when  he  is  paid  the  amount  adjudged 


i  i! 


278 


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FIRE  INSURANCE 


proper  to  cover  the  loss,  and  the  company  may  sue  and  collect 
on  the  other  claims. 

Notes: 

1.  It  is  wiser  to  leave  property  in  its  damaged  condition 

after  a  fire  until  the  adjuster  arrives.  But  if  there 
is  danger  of  its  becoming  more  damaged  by  being 
left,  it  should  be  removed  to  a  place  of  safety. 
The  insured  should  take  every  precaution  to  keep 
the  loss  as  low  as  possible. 

2,  Be  sure  to  include  everything  in  the  inventory  and 

to  state  its  full  value.  It  will  be  very  difficult  to 
prove  any  greater  value  afterwards. 


279 


9.    What  representations  are  material  ?    What  is  a  concealment  and 

when  must  it  take  place  in  order  to  avoid  the  policy? 
10.  An  insurance  company  fails,  and  can  pay  but  6  per  cent  of  its 
liabilities.  Some  of  its  risks  are  reinsured.  Is  the  solvent 
reinsurer  liable  for  the  whole  amount  insured  by  it,  or  only 
for  the  amount  which  the  bankrupt  insurer  pays?  Answer 
fully  and  give  reasons. 


Review  Questions 


ii 


I. 

.2. 


What  is  a  contract  of  insurance? 

Why  must  the  person  insuring  have  an  interest  in  the  property 
insured?    Has  a  mortgagee  an  insurable  interest? 

3.  What  is  the  difference  between  an  insurance  broker  and  an 

insurance  agent? 

4.  What  is  the  distinction  between  an  open  and  a  valued  policy  ? 

5.  What  occurrences  may  invalidate  a  policy? 

6.  What  phrase  is  used  if  a  mortgagee  insures  property?    What 

will  be  the  extent  of  the  mortgagee's  recovery  if  the  mortgage 
had  been  reduced  before  the  fire  occurred? 

7.  A  notice  of  the  premium  due  is  sent  to  the  insured  with  no 

mention  of  a  penalty  for  failure  to  pay.  Does  policy  lapse 
if  payment  is  tendered  one  month  late  and  refused  by  the 
company  ? 
&  What  is  the  meaning  of  an  80  per  cent  clause  in  a  fire  insurance 
contract  or  policy,  and  what  would  be  the  cash  settlement 
by  the  insurance  company  in  case  the  property  insured  inven- 
toried at  the  time  of  the  fire  $150,000  but  was  insured  for 
only  $100,000?  What  would  be  the  settlement  if  the  property 
insured  inventoried  only  $75,000  but  was  insured  for  $100,000? 


I 


it 


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281 


t 


CHAPTER  XXXVIII 

LIFE  INSURANCE 

§935.    Nature  of  Contract 

Life  insurance  today  is  one  of  the  most  important  busi- 
nesses in  tlie  country.  Before  the  invention  of  the  mortality 
tables  the  rates  were  high  and  the  business  was  on  too  uncer- 
tain a  basis  to  be  widely  utilized.  With  its  present  develop- 
ment it  has  become  of  the  greatest  value  as  a  means  of  saving, 
investing,  and  protecting  business.  Its  value  as  a  protection 
against  a  dependent  old  age  has  caused  governments  through- 
out the  world  to  become  interested  in  it,  different  forms  of  old- 
age  insurance  being  in  use  in  various  countries  and  among  the 
state  employees  of  Massachusetts. 

This  form  of  insurance  has  been  imder  discussion  for  the 
past  few  years  by  the  various  state  legislatures  and  commis- 
sions appointed  for  that  purpose,  but  aside  from  Massachusetts 
has  not  actually  come  into  being.  The  main  objection,  of 
course,  to  such  insurance  is  that  it  will  raise  the  taxes,  and 
legislatures  do  not  feel  that  the  need  is  great  enough  to  justify 
the  increase  of  taxes  at  the  present  time. 

§  a3<L    Insurable  Interest 

Like  the  contract  of  fire  insurance,  the  contract  of  Kfe  in- 
surance is  a  speculative  one.  If  a  person  attempts  to  insure  the 
life  of  someone  other  than  himself,  he  must  have  an  insurable 
interest  in  it,  though  this  interest  need  not  continue  during  the 
life  of  the  insured  nor  e^tist  at  his  death.  One  may,  however, 
insure  one's  own  life  and  make  such  insurance  payable  to  a 
beneficiary  who  has  no  insurable  interest  in  one's  life. 

280 


An  insurable  interest  in  a  human  life  is  not  easy  to  define. 
Generally  the  party  who  does  the  insuring  must  be  related  to 
the  insured  by  such  ties  of  blood,  marriage,  or  contract  that  the 
death  of  the  insured  would  materially  injure  him.  A  married 
couple  have  an  insurable  interest  in  each  other's  lives ;  a  father 
has  an  insurable  interest  in  the  lives  of  his  children  because 
they  might  some  day  support  him;  a  sister  may  insure  her 
brother  for  similar  reasons;  a  partner  may  insure  the  life  of 
his  copartner;  or  a  creditor  may  likewise  insure  the  life  of  a 
debtor. 

§  237.    The  Parties 

The  parties  to  a  life  insurance  policy  are:  the  person  whose 
life  is  insured,  or  the  applicant;  the  person  for  whose  benefit 
it  is  insured,  or  the  beneficiary;  and  the  person  or  company 
insuring  it. 

Life  insurance  may  be  conducted  either  through  a  corpora- 
tion, or  through  a  fraternal  organization,  or  it  may  be  mutual. 
Many  of  the  large  life  insurance  companies  are  either  mutual- 
ized,  or  are  mutualizing.  In  a  mutualized  life  insurance  com- 
pany, all  excess  over  actual  cost  of  insuring  is  later  returned 
to  the  policyholders  as  dividends.  In  a  stock  corporation,  this 
excess  goes  to  the  stockholders.  Where  a  former  stock  com- 
pany becomes  mutualized,  provisions  are  usually  made  by 
which  the  stockholders  and  policyholders  are  each  to  have  a 
share  in  the  dividends  in  proportion  to  what  is  determined  to 
be  their  actual  interest  in  the  company. 

Fraternal  benefit  insurance  exists  among  the  various 
masonic  and  other  orders  and  in  many  business  organizations. 
It  is  a  form  of  mutual  life  insurance.  When  a  benefit  falls 
due,  it  is  raised  by  assessment  on  the  members  in  proportion 
to  their  rights  to  benefit  by  the  fund,  or  else  a  fund  is  raised 
by  assessment  and  kept  on  hand  to  meet  the  benefits  as  they 
become  due. 


aSa 


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LIFE  INSURANCE 


283 


if 


§  338.    The  Policy 

Policies  are  of  various  forms.  In  participation  policies, 
the  accumulated  surplus  in  any  year  is  divided  among  the 
policies  and  the  share  of  each  is  credited  to  it,  to  be  paid  over 
when  the  policy  becomes  due. 

In  non-forfeitable  or  incontestable  policies,  the  company 
agrees  that  after  a  certain  period  of  time  the  policy  shall  not 
be  forfeited  for  any  cause  except  non-payment  of  premiums. 
Courts  will  usually  enforce  this  agreement.  Of  course,  if  the 
beneficiary  has  no  insurable  interest,  the  contract  would  have 
been  illegal  from  the  first  and  could  not  be  enforced. 

Policies  may  be  whole  life,  that  is,  the  premiums  continue 
to  be  payable  until  the  death  of  the  person  whose  life  is  in- 
sured. If  the  policy  is  a  participating  one,  the  dividends  may 
either  be  applied  to  reduction  of  the  premiums,  or  may  be 
accumulated,  as  the  holder  prefers. 

Another  form  of  policy  is  Umited  payment  life.  The 
premiums  on  this  class  of  policy  are  so  divided  as  to  be  payable 
within  a  limited  number  of  years.  After  this  the  policy 
becomes  a  paid-up  policy  and  is  payable  on  the  death  of  the 
person  whose  life  was  insured. 

There  are  also  endowment  policies  and  term  policies.  The 
endowment  policy  is  perhaps  the  most  common  form  of  policy. 
Under  it,  the  amount  is  payable  either  at  the  end  of  a  fixed 
term  of  years,  or  upon  death  in  case  of  death  before  the 
expiration  of  that  period.  This  policy  operates  both  as  an 
investment  and  a  protection.  At  the  end  of  the  term  the 
insured  may,  as  a  general  rule,  exercise  his  option  to  take  out 
a  paid-up  policy  and  leave  the  money  invested. 

'  Term  insurance  is  unlike  endowment  insurance  in  that  it 
does  not  allow  any  accumulations,  nor  permit  the  holder  to 
take  out  a  paid-up  policy  at  the  end  of  the  term.  When  the 
term  has  expired  it  simply  lapses. 


Term  insurance  is  simply  protection  for  a  definite  term 
at  the  lowest  possible  cost.  Like  fire  insurance  it  covers 
the  risk  for  the  time  specified  and  then  ceases.  It  provides 
no  accumulations  to  offset  advancing  age,  the  insured  must 
assume  this  burden,  nor  does  it  provide  cash,  loan,  extended 
insurance  or  paid-up  values.* 

Double  indemnity  policies  were  first  offered  about  191 2. 
These  policies  provide  that  in  case  of  death  by  accident,  the 
beneficiary  shall  receive  twice  the  face  of  the  policy.  At  first 
this  double  payment  was  made  only  in  case  of  death  by 
accident  on  a  common  carrier,  but  the  policies  now  being 
written  provide  for  double  indemnity  in  case  of  death  by 
any  accident.  In  addition,  these  policies  now  provide  that  in 
case  of  permanent  disability,  payment  of  premiums  shall  be 
waived  and  one-tenth  the  face  of  the  policy  will  be  paid  each 
year,  and  at  death  the  full  face  of  the  policy  will  be  paid. 

Application  and  Examination,  If  the  company  does  not 
consider  the  life  a  good  risk,  it  has  a  right  to  reject  the  appli- 
cation. The  applicant  is  required  to  answer  questions  on  an 
application  blank  and  to  submit  to  a  medical  examination.  As 
the  application  blank  is  made  a  part  of  the  policy,  any  state- 
ments on  it  amount  to  warranties,  and  the  policy  will  be  of  no 
value  if  any  of  them  are  false.  If,  otherwise  than  on  the  blank, 
the  insured  makes  any  false  representations  which  have  any 
effect  on  the  risk  or  the  insurance,  the  policy  is  void. 

Notes: 

1.  A  policy  of  life  insurance  should  always  be  carefully 

read  to  make  sure  that  the  kind  asked  for  has  been 
issued.  It  is  well  to  examine  closely  various 
forms  and  find  out  the  advantages  they  offer  be- 
fore insuring.  The  laws  of  some  states  give  more 
security  to  the  insured  than  the  laws  of  others. 

2.  Fraternal  insurance  has  failed  in  many  cases,  be- 


>  Dunham  on  Insurance,  I,  298. 


284  INSURANCE 

cause  new  members  ceased  joining  and  those  re- 
maining could  not  pay  the  increased  assessment. 
3,  To  cheat  the  company  by  answering  questions  on  an 
application  blank  falsely  is  useless.  The  policy 
will  be  worthless  when  the  insurance  is  needed. 

a, 

§  339.    Premium  Rates 

The  premium  rates  in  life  insurance  are  worked  out  by 
means  of  the  mortality  tables.  These  are  tables  based  on  an 
examination  of  statistics,  giving  the  probable  length  of  life  at 
certain  ages.  Accordingly  a  yoimg  person  can  take  out  in- 
surance at  a  smaller  premium  rate  than  a  middle-aged  person. 
The  rate  increases  as  one  grows  older  and  death  becomes  more 
imminent 

If  these  premiums  are  not  paid  when  they  are  due  the 
policy  becomes  forfeited;  but  the  company  must  give  notice 
to  the  person  whose  life  is  insured,  or  to  the  assignee  if  the 
policy  has  been  assigned,  and  notice  to  him  again  each  time  a 
premium  becomes  due.  The  company  may  extend  the  time  of 
payment  or  take  a  note  for  the  amount. 

In  fraternal  insurance  the  members  of  the  association  are 
usually  not  charged  premiums  but  are  assessed  on  the  basis  of 
their  interest  in  the  common  fund.  Sometimes  these  assess- 
ments are  made  from  time  to  time  and  a  fund  accumulated; 
more  frequently  they  are  made  when  some  member  dies  and 
Ms  family  becomes  entitled  to  the  benefit. 

Note: 

I.    It  is  much  cheaper  to  take  out  insurance  early  in  life. 


§  340.    Agents 

Life  insurance  agents,  as  well  as  fire  insurance  agents,  must 
procure  a  license  from  the  state  department  in  charge  of  in- 


LIFE  INSURANCE 


285 


surance.    In  New  York  these  licenses  have  to  be  renewed  every 
year.    (See  Part  IV  on  the  general  subject  of  agency.) 

§  241.    Right  to  Change  Beneficiary 

Unless  there  is  a  clause  in  the  policy  reserving  the  right  to 
change  the  beneficiary,  no  change  can  be  made  without  his 
consent  in  writing.  The  beneficiary  has  a  vested  right  in  the 
policy — one  which  he  can  himself  transfer  to  someone  else. 
In  some  states,  even  if  he  dies  before  the  insured,  the  profits 
of  the  policy  will  go  to  the  beneficiary's  estate  and  no  one  else 
can  be  named. 

The  beneficiary  cannot  be  changed  without  his  consent  if 
the  insured  has  taken  out  the  policy  under  an  agreement  with 
him,  or  if  the  beneficiary  has  paid  any  of  the  premiums. 

The  consent  of  the  company  must  always  be  obtained  to 
any  change  of  beneficiary.    This  consent  must  be  in  writing. 


Note: 
I. 


The  policy  should  always  contain  a  clause  permitting 
a  change  in  the  beneficiary.  If  such  a  change  is 
not  provided  for,  anyone  taking  the  policy  as  se- 
curity must  get  the  written  consent  of  the  bene- 
ficiary to  the  arrangement 


§  24a.    Assignment  of  Policy 

A  policy  of  life  insurance  belongs  to  the  insured  if  he 
has  taken  it  out  and  by  its  terms  has  the  right  to  change  the 
beneficiary,  or  to  make  his  own  estate  the  beneficiary. 
The  beneficiary  in  such  case  has  only  a  contingent  in- 
terest, and  has  nothing  he  can  assign  to  anyone  else.  If, 
however,  under  the  terms  of  the  policy  the  insured  cannot 
change  the  beneficiary,  then  the  beneficiary  has  a  vested  in- 
terest and  he  alone  can  assign  it.  The  company  must  be  notified 
of  any  assignment. 


a86 


INSURANCE 


LIFE  INSURANCE 


2%^ 


§  243.    Settlement  of  Losses 

When  he  makes  his  claim  for  the  proceeds  of  the  policy, 
the  beneficiary  must  send  with  it  a  proof  of  death  filled  out  on 
one  of  the  company's  forms  and  certified  by  a  physician. 

Where  there  has  been  a  change  of  beneficiaries  or  the 
policy  has  been  used  as  security,  there  may  be  conflicting  claims 
for  the  proceeds.  If  the  various  claimants  can  agree  among 
themselves,  the  company  will  generally  pay  the  loss  to  those 
who  are  admitted  to  be  entitled  to  it,  upon  receiving  releases 
from  all  the  claimants.  If  there  is  a  dispute  which  cannot  be 
settled  otherwise,  it  usually  has  to  be  decided  in  court 

The  company  will  resist  the  payment  of  claims  if  there  was 
any  fraud  in  the  procuring  of  the  policy  or  if  misrepresenta- 
tions as  to  the  health  of  the  insured  come  to  its  knowledge.  In 
one  case  known  to  the  writer,  the  beneficiary  in  the  proof  of 
death  made  a  statement  as  to  the  age  of  the  insured  person 
which  differed  from  that  made  in  the  policy.  The  company 
discovered  that  there  had  been  a  misrepresentation  and  re- 
sisted the  payment  of  the  claim. 

Suicide,  unless  committed  within  a  year  from  the  time  the 
policy  was  taken  out,  does  not  generally  excuse  the  company 
from  payment.  Many  policies  provide  that  if  the  insured  is 
killed  while  engaged  in  the  commission  of  crime  or  executed 
as  a  punishment  for  crime,  the  policy  will  not  be  payable.  The 
death  must  be  the  result  of  the  crime  in  order  to  render  the 
policy  void.  Dying  of  apoplexy  while  attempting  to  hold  up 
a  train  would  not  excuse  payment. 

Notes: 

I.  In  order  to  make  sure  that  the  proceeds  of  a  policy 
will  go  to  the  person  whom  the  insured  intends  to 
benefit,  without  an  expensive  lawsuit,  it  is  wisest, 
when  making  any  change  in  a  policy,  to  get  a 
written  release  from  any  party  who  may  be  af- 


fected by  the  change,  and  keep  it  attached  to  the 
policy. 
2.     Under  the  New  York  law,  creditors  can  collect  all 
insurance  over  the  amoimt  a  $500  a  year  premium 
will  bring. 

§  244.    Government  Insurance  for  Soldiers  and  Sailors 

At  the  entrance  of  the  United  States  into  the  Great  War, 
the  government  announced,  as  a  substitute  for  the  pension 
system,  a  plan  of  insurance  for  officers  and  men  of  the  army, 
navy  and  marine  corps.  Under  this  plan,  the  government 
undertook  the  costs  of  administration,  and  offered  term  in- 
surance on  the  monthly  income  plan.     (See  §  238.) 

The  term  extended  from  the  beginning  of  the  war  to  five 
years  after  the  declaration  of  peace.  By  the  monthly  income 
plan  is  meant  a  system  of  paying  the  beneficiary,  not  a  lump 
sum  to  be  kept  as  capital,  but  a  monthly  sum  to  be  used  as 
income,  payment  to  run  in  this  case,  for  a  period  of  twenty 
years.  By  this  system  a  man  taking  out  the  maximum  insurance 
of  $10,000  would  pay  approximately  $6.50  per  month  for  it, 
the  rate  increasing  slightly  each  year.  In  case  of  his  death 
from  any  cause  his  beneficiary  (who  must  be  a  relative)  re- 
ceives $57-50  each  month  until  240  payments  have  been  made). 

Within  about  six  months  after  the  armistice  was  signed, 
the  government  announced  a  plan  of  converting  any  of  these 
term  policies  into  one  of  six  forms  more  closely  resembling 
ordinary  commercial  insurance.  The  new  forms  offered  pro- 
tection to  ex-soldiers,  sailors  and  marines  for  the  remainder 
of  their  lives.  Conversion  may  be  made  at  any  time  within 
^\t  years  after  peace  has  been  declared;  if  not  made  at  all, 
the  insurance  simply  stops. 

The  six  policies  now  offered  holders  of  the  original  term 
insurance  are: 


1 1 


288 


INSURANCE 


LIFE  INSURANCE 


289 


"t 


I. 

2. 

6. 


Ordinary  life 
Twenty-payment  life 
Thirty-payment  life 
Twenty-year  endowment 
Thirty-year  endowment 
Endowment  at  age  of  sixty-two 

In  all  cases  except  where  the  policyholder  lives  to  draw 
the  endowment  himself,  the  benefit  is  paid  on  tlie  monthly 
income  plan,  payments  covering  twenty  years.  A  disability 
clause  is  attached  to  all  these  policies,  whereby  if  the  policy- 
holder is  totally  and  permanently  disabled,  the  government 
waives  premiums  and  pays  him  for  the  remainder  of  his  life, 
the  monthly  income  his  beneficiary  would  have  had.  This 
deprives  the  beneficiary  of  any  payments  except  where  the 
insured  dies  before  240  payments  are  made  to  him.  In  such 
a  case,  the  beneficiary  receives  a  monthly  income  for  the  re- 
mainder of  the  twenty  years. 

All  matters  relating  to  this  subject  are  controlled  by  the 
Bureau  of  War  Risk  Insurance,  Washington,  D.  C.  In  case 
the  Bureau  gives  an  adverse  decision  on  any  claim,  appeal  may 
be  taken  to  the  federal  courts. 


5. 
6. 

7- 
8. 


afterwards  his  son  wrote  the  office  of  the  company  in  care 
of  the  president,  and  told  him  that  his  father  was  ill,  and 
asked  that  the  time  be  extended.  The  president  wrote  back 
that  if  he  would  pay  the  premiums  within  one  week  it  would 
be  all  right.  Williams  died  the  following  day,  and  before  the 
week  elapsed,  the  son  came  and  tendered  the  premium,  which 
the  company  declined  to  receive,  and  denied  any  liability  on 
the  policy.  Is  the  company  liable  thereon?  Give  your  reasons 
for  your  answer? 

Can  the  beneficiary  be  changed? 

When  can  the  beneficiary  assign  his  rights? 

Why  did  the  government  arrange  to  insure  its  soldiers  and 
sailors  ? 

Into  what  forms  was  this  converted  at  the  close  of  the  war? 


I 


1 


I. 

a* 


Review  Questions 

What  is  meant  by  an  insurable  interest  in  another  person's  life? 

What  are  the  three  methods  of  life  insurance?    Explain  each. 

Explain  the  following  classes  of  policies:  Participation,  non- 
forfeitable, whole  life,  limited  payment  life,  endowment,  and 
term. 

4.  One  Williams  had  a  life  insurance  policy  in  the  American  Life 
Insurance  Company  for  $10,000.  The  policy  provided  that  if 
the  annual  premium  was  not  paid  on  the  day  it  became  due 
the  policy  should  become  void.  Williams  became  ill  and  failed 
to  pay  the  premium  on  the  day  it  was  due,  and  about  a  week 


SUNDRY  INSURANCE  CONTRACTS 


291 


l! 


CHAPTER  XXXIX 

SUNDRY  INSURANCE  CONTRACTS 

§  245.    Enumeration 

In  addition  to  fire  and  life  insurance,  there  are  sundry 
other  insurance  contracts,  such  as  marine,  accident,  health, 
group,  liability,  title,  burglary,  plate  glass,  automobile,  boiler, 
burial,  credit,  fidelity,  hail,  live  stock,  rent,  strike,  and  tornado. 

In  all  of  these  the  policies  call  for  certain  representations 
which  must  be  truthful ;  and  proofs  of  loss  must  be  made  out 
and,  as  a  rule,  sworn  to,  when  payment  of  a  loss  is  claimed. 

§  246.    Marine  Insurance 

This  is  the  oldest  form  of  insurance,  older  than  either  fire 
or  life  insurance.  It  originated  in  Lloyd's  Coffee  House  in 
London,  and  the  policy  is  known  as  Lloyd's.  The  policies  were 
passed  around  among  the  dealers  in  insurance,  and  each  took 
such  share  of  any  given  risk  as  he  cared  to.  These  subscribers 
were  called  underwriters  and  in  case  of  loss  they  were  assessed 
in  proportion  to  their  subscriptions  to  pay  the  loss.  The  busi- 
ness is  handled  by  regular  incorporated  companies  today.  Its 
object  is  to  protect  the  insured  against  losses  on  a  vessel  at 
sea.  Marine  policies  may  also  be  taken  out  on  ships  traveling 
m  any  navigable  waters. 

The  policy  covers  losses  by  fire,  various  forms  of  ship- 
wreck including  losses  incurred  in  trying  to  avert  shipwreck, 
and  losses  from  piracy.  The  insured  is  by  custom  held  to  be 
in  duty  bound  to  give  the  insurer  all  information  in  his  power 
with  regard  to  the  ship,  the  voyage,  the  cargo,  or  anything 
else  that  might  affect  the  risk.     If  he  conceals  anything  or 

290 


I. 


2. 

3. 


makes  any  false  representations,  the  policy  will  not  take 
effect.  The  person  taking  out  marine  insurance  must  fulfil 
the  following  requirements: 

He  must  have  an  insurable  interest  in  the  goods  or 

vessel  insured. 
He  must  warrant  that  the  vessel  is  seaworthy. 
He  must  warrant  that  the  goods  insured  were  in  good 

condition  when  taken  on  board. 

If  any  of  these  conditions  are  not  met,  the  insurer  will  not  be 
liable. 

In  a  marine  policy,  the  amount  payable  in  case  of  loss  is 
fixed  by  the  policy,  and  no  attempt  at  valuation  is  made  unless 
the  loss  is  incomplete.  Marine  policies  also  cover  what  is 
known  as  general  average. 

Proofs  of  loss,  giving  full  particulars  of  the  nature, 
amount,  and  cause  of  the  damage  must  be  made  out  and  sworn 
to  by  the  master  and  crew  of  the  vessel ;  and  then  an  investiga- 
tion is  made  either  by  some  government  surveyor  of  the  port, 
or  by  experts  chosen  by  the  parties  to  the  contract.  In  the 
event  of  a  dispute  as  to  the  amount  of  the  damage,  the 
damaged  goods  are  sold  at  auction  and  the  amount  determined 
in  that  way.  The  insured  must  show  bills  of  lading  or  other 
documents  to  prove  his  ownership  of  damaged  goods,  and  the 
policy  cannot  be  assigned  without  the  underwriter's  consent. 

In  the  American  Lloyd's  policies  it  is  provided  that  if  there 
is  any  prior  insurance  on  the  vessel  the  underwriters  shall  be 
liable  only  to  the  extent  that  the  prior  policies  do  not  cover 
the  loss. 

§  247.    General  and  Particular  Average 

From  the  eariiest  times,  it  has  been  the  custom,  where 
goods  were  jettisoned  (i.e.,  thrown  overboard  at  sea  to  save 
the  vessel),  for  the  other  owners  of  merchandise  on  board  and 


iwusiuaiiiitiiittb 


aga 


INSURANCE 


SUNDRY  INSURANCE  CONTRACTS 


293 


III 


the  owners  of  the  vessel  to  contribute  proportionately  to  make 
good  the  loss.  This  is  called  "general  average."  In  calculating 
the  assessment  the  owner  of  the  lost  goods  is  included;  it 
follows  that  he  is  never  reimbursed  by  general  average  for  his 
full  loss.  The  assessment  is  a  lien  against  the  goods  until  the 
entire  amount  is  paid.  The  underwriter  takes  upon  himself 
the  responsibility  of  collecting  this  contribution. 

The  term  "particular  average"  is  applied  to  the  payment  for 
partial  loss.  This  refers  to  actual  insurance  on  the  particular 
thing  or  goods  insured  and  is  paid  by  an  insurance  company. 
The  clause  reads  generally  to  this  effect:  "no  partial  loss  or 
particular  average  shall  in  any  case  be  paid,  unless  amounting 
to  5  per  cent"  Then  if  less  than  5  per  cent  of  the  goods  is 
completely  lost,  no  claim  at  all  can  be  made  against  the  in- 
surance company;  or  if  the  whole  cargo  is  damaged  to  a  slight 
extent,  no  claim  can  be  made.  The  term  to  indicate  that  a 
policy  does  not  cover  partial  losses,  is  "free  of  particular 
average,"  often  abbreviated  to  F.  R  A.  The  opposite  term, 
indicating  more  complete  insurance  at  a  higher  rate,  is  "with 
average"  (W.  A.)  or  "against  all  risks"  (A.  A.  R.) 

Note: 

I.  Anyone  taking  out  a  marine  policy  should  be  care- 
ful to  note  just  what  dangers  it  protects  against, 
especially  what  provision  it  makes  in  case  of  war. 
In  the  Lloyd's  policy  it  is  necessary  to  make  a 
special  arrangement,  as  the  ordinary  policy  ex- 
pressly releases  the  insurer  from  damages  arising 
from  the  perils  of  war. 

.  §  248.    Accident  Insurance 

Accident  insurance  is  insurance  against  injury  or  death  by 
accident.  The  policy  may  cover  injury  only,  or  it  may  also 
provide  for  a  payment  to  a  beneficiary  in  case  of  the  death  of 


the  insured  by  any  accident.  The  proceeds  are  payable  to  the 
person  himself  in  case  of  injury.  These  policies  do  not  cover 
mere  illness,  but  such  things  as  ivy  poisoning,  etc.,  which  arc 
regarded  as  accidents,  are  included. 

Sometimes  there  is  a  dispute  as  to  what  constitutes  an  acci- 
dental injury.  Thus,  although  infected  water  might  be  drunk 
through  accident  and  serious  illness  result,  one  could  not  col* 
lect  an  indemnity;  whereas  one  could  collect  on  injuries  due 
to  inhaling  gas,  poison  taken  by  mistake,  etc. 

Many  companies  will  not  pay  if  the  insured  exposed  him- 
self to  unnecessary  risk  such  as  jumping  on  a  moving  street- 
car ;  nor  will  they  pay  for  injuries  received  while  intoxicated, 
though  in  this  regard  there  is  sometimes  great  difficulty  in 
deciding  if  a  person's  intoxication  were  such  as  to  make  him 
more  liable  to  injury,  and  if  it  were  not  they  would  have  to 

pay. 

All  accident  policies  provide  lump-sum  indemnities  for 
such  injuries  as  the  loss  of  a  hand,  etc. 

§  249.    Health  Insurance 

Some  companies  insure  against  sickness  and  ill  health. 
Usually  these  policies  name  a  list  of  diseases  in  event  of  which 
a  weekly  indemnity  is  granted.  In  some  cases  the  health 
insurance  is  allowed  only  in  conjunction  with  accident  insur- 
ance. Some  of  the  fraternal  orders  allow  their  members  sick 
benefits  which  are  the  equivalent  of  health  insurance.  Practi- 
cal difficulties  in  administering  the  business  of  insuring  against 
sickness  have  limited  its  development.  A  savings  account  is 
probably  the  best  provision  against  ill  health. 

§250.    Group  Insurance 

Group  insurance  is  a  plan  to  insure  a  number  of  the  em- 
ployees of  one  employer  offering  an  eligible  group,  without 
individual  medical  examination,  under  one  blanket  contract 


ill 


294 


INSURANCE 


SUNDRY  INSURANCE  CONTRACTS 


m 


issued  to  the  employer.  It  is  generally  applied  only  to  life 
insurance  though  the  principle  of  insuring  a  group  could 
logically  be  applied  to  accident  and  health  insurance  at  least. 

The  premiums  for  this  insurance  are  paid  monthly  by  the 
employer  and  the  insurance  is  payable  to  the  beneficiary  named 
by  the  employee.  Ordinarily  the  basis  of  insurance  is  one 
year's  salary  with  a  maximum  of  $3,000  to  any  individual. 
Any  employee  receiving  annual  remuneration  in  excess  of  that 
sum  would  receive  only  $3,000  insurance. 

If  it  is  desired  by  the  employer,  the  insurance  company  will 
settle  the  insurance  benefits  in  twelve  monthly  payments.  This 
would  amount  to  a  continuance  of  the  pay  check  for  a  full 
year  in  the  event  of  death  while  in  service— during  which  time 
the  beneficiaries  would  be  able  to  adjust  themselves  to  the 
changed  conditions  caused  by  the  death  of  the  breadwinner. 

The  operation  of  the  plan  is  simple.  New  incoming  em- 
employees  are  automatically  included  upon  passing  a  simple 
health  test  and  the  insurance  by  the  employer  on  outgoing 
employees  ceases  upon  termination  of  service. 

The  cost  depends  on  the  age  and  annual  wage  of  each 
employee.  It  would  be  approximately  ij4  per  cent  to  i  J^  per 
cent  of  the  annual  pay-roll. 

§  351.    Liability  Insurance 

Liability  insurance  is  to  protect  the  employer  from  liabili- 
ties arising  under  the  Employers*  Liability  or  Workmen's  Com- 
pensation Acts.  (See  §§  279,  280.)  In  many  states  it  is 
possible  to  take  out  this  form  of  insurance  with  a  state  fund. 
There  is  also  automobile  liability  insurance,  which  covers  lia- 
bility for  injuries  to  others  resulting  from  the  use  of  the  auto- 
*  mobile.  Railroad  companies  may  take  out  insurance  (carriers' 
liability  insurance)  to  protect  them  against  liability  to  pas- 
sengers and  others,  for  injuries  arising  from  railroad  acci- 
dents. 


29s 


§  352.    Title  Insurance 

In  order  to  protect  purchasers  of  real  estate  against  the 
expense  of  lawsuits  arising  from  possible  defects  in  the  title 
to  the  property,  a  business  of  investigating  and  insuring  the 
title  has  grown  up.  Title  insurance  companies  generally  fur- 
nish both  title  searches  and  insurance.  As  with  most  other 
insurance  of  this  nature,  the  company  generally  settles  the 
claim  or  defends  the  suit  on  notice  from  the  insured  that  he 
has  been  served  with  a  notice  of  suit 

§  253.    Burglary  Insurance 

This  is  one  form  of  what  is  known  as  casualty  insurance, 
that  is,  insurance  against  accidents  to  property  of  various  kinds 
other  than  loss  by  fire.  It  is,  as  the  name  implies,  insurance 
against  loss  of  property  by  theft.  It  applies  only  when  the 
theft  is  committed  by  someone  breaking  into  the  house  or 
building  where  the  property  is  kept,  unless  the  policy  states 
otherwise.    It  would  not  cover  having  one's  pocket  picked. 

§  254.    Plate  Glass  Insurance 

This  is  insurance  on  large  plate  glass  windows  because  of 
the  great  expense  of  replacing  them.  It  also  is  a  form  of 
casualty  insurance.  Where  the  windows  are  injured  in  a  fire, 
if  there  is  any  insurance  other  than  the  glass  insurance  policy 
on  them  or  on  the  building,  only  an  amount  proportioned  to 
the  relation  of  that  policy  to  the  whole  amount  of  insurance 
on  the  building  can  be  collected  on  the  plate  glass  insurance 
policy. 

§  255.    Automobile  Insurance 

Many  companies  offer  automobile  insurance.  What  is 
known  as  a  full  cover  on  an  automobile  includes  insurance 
against  the  hazards  of: 


296 


INSURANCE 


SUNDRY  INSURANCE  CONTRACTS 


297 


m 


m 


ii|i 


1.  Fire  or  explosion. 

2.  Transportation,  i.e.,  derailment  and  coUisioa 

3.  Theft. 

4.  Damage  by  fire  to  personal  effects  carried  upon  the 

car. 

5.  Damage  to  other  property  by  being  in  coUision  with 

the  automobile  insured— known  as  property  dam- 
age. 

6.  Damage  to  the  automobile  insured  by  being  in  col- 

lision with  some  other  object 

7.  Loss  of  life  or  injury  to  the  occupants  of  the  car  and 

legal  liability  for  expenses  in  connection  therewith. 

8.  Loss  of  life  or  injury  to  others  and  legal  liability  for 

expenses  in  connection  therewith. 

The  rates  are  high  to  compensate  for  the  very  considerable 
risks.  What  is  known  as  the  "moral  hazard,"  i.e.,  the  risk  of 
unfair  dealing  by  owners,  is  great,  and  hard  to  guard  against. 
The  enumeration  of  hazards  shows  the  varied  possibilities  of 
loss  and  damage. 

§  asC.  Other  Forms  of  Insurance 

BoUer  Insurance.  This  is  insurance  against  injuries  to 
property  arising  from  boiler  explosions,  another  form  of 
casualty  insurance.  A  fire  insurance  policy  does  not  cover 
such  a  loss  unless  the  explosion  resulted  from  a  fire. 

BurUU  Insurance.  This  form  of  insurance  is  in  operation 
among  the  very  poor.  In  return  for  certain  weekly  or  monthly 
payments,  the  company  guarantees  to  pay  the  expenses  of  a 
decent  burial. 

Credit  Insurance.  Credit  insurance  is  insurance  against 
*the  dishonesty  or  the  insolvency  of  debtors. 

Fidelity  Insurance.  Fidelity  insurance  is  insurance  against 
losses  arising  from  fraud  or  dishonesty  on  the  part  of  agents 
or  employees.    There  are  three  forms  of  fidelity  bonds:  first. 


the  larceny  or  embezzlement  bond;  second,  the  culpable  neg- 
ligence bond ;  and  third,  the  faithful  performance  bond.  The 
last  is  the  most  comprehensive  and  the  most  costly. 

Hail  Insurance.  This  is  common  in  the  grain  states,  where 
the  farmers  often  suffer  heavy  loss  because  of  the  damage  hail- 
storms do  their  crops. 

Live  Stock  Insurance.  Blooded  animals  are  so  valuable  that 
their  owners  find  it  necessary  to  protect  themselves  against 
loss  by  carrying  insurance  against  disease  or  death. 

Rent  Insurance.  This  is  insurance  for  the  loss  of  rents 
owing  to  the  failure  of  tenants  to  pay  rent,  or  to  a  destruction 
of  the  property  by  fire  or  some  other  calamity. 

Strike  Insurance.  An  employer  can  even  insure  himself 
against  strikes  on  the  part  of  his  employees,  and  the  consequent 
losses. 

Tornado  Insurance.  As  its  name  indicates,  this  is  insur- 
ance against  damages  and  loss  of  property  arising  from  tor- 
nadoes. 


Review  Questions 

1.  What  three  requirements  are  essential  to  the  contract  of  marine 

insurance  ? 

2.  Has  a  stockholder  an  insurable  interest  in  a  steamboat  owned 

but  not  insured  by  the  corporation? 

3.  What  is  "general  average"? 

4.  What  is  "particular  average"? 

5.  What  risks  are  usually  covered  by  an  accident  insurance  policy? 

6.  What  is  group  insurance? 

7.  What  is  the  usual  purpose  of  liability  insurance?    Who  takes 

out  the  policy? 

8.  What  is  title  insurance? 

9.  What  does  the  owner  of  an  automobile  want  insurance  against? 
10.     Who  takes  out  fidelity  insurance?    What  is  the  simplest  form? 

Under  this  form  could  the  holder  of  the  policy  recover  if  his 
employee  lost  the  money  ? 


Wit 


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PART  VII 


EMPLOYMENT 


ill 


r,  I 


CHAPTER  XL 

THE  CONTRACT  OF  EMPLOYMENT* 

§  257.    Introduction 

The  contract  of  employment  is  perhaps  the  one  which  most 
concerns  the  ordinary  man  in  his  every-day  affairs.  All  the 
relations  between  employers  and  employees  are  governed  by 
contract  and  the  laws  regulating  the  subject.  In  recent  years, 
these  laws  have  undergone  almost  a  revolution ;  and  they  are 
still  being  rapidly  changed  to  meet  the  modern  ideas  of  what 
such  relationships  should  be,  and  the  new  sense  of  the  obliga- 
tions which  the  employer  owes  to  those  under  him.  It  is  most 
important  for  everyone  to  know  exactly  what  these  changes 
in  the  law  are,  and  how  they  may  affect  him  individually. 

The  Federal  Employers'  Liability  Act,  which  defines  the 
rights  of  all  employees  engaged  in  the  business  of  interstate 
commerce,  has  been  followed  in  many  of  the  states  by  acts 
of  like  tenor ;  and  various  efforts  have  been  made  to  introduce 
some  of  the  schemes  for  workmen's  compensation  and  old-age 
pensions  from  abroad.  Both  of  these  plans  have  already  been 
adopted  in  some  of  the  states ;  and,  it  would  appear  from  the 
trend  of  modem  legislation,  they  are  likely  in  the  near  future 
to  be  enacted  into  some  form  of  law  in  most  states  of  the 
Union. 

Too  much  importance  cannot  therefore  be  given  to  the  con- 
tents of  this  particular  chapter.  For  this  reason  the  subject  of 
the  relations  of  employer  and  employee  has  been  treated  with 
some  fulness  of  detail. 


*FoT  forms  of  contract  of  employment,  see  Chapter  CIV,  Forms  46,  49. 

SOI 


302 


EMPLOYMENT 


THE  CONTRACT  OF  EMPLOYMENT 


303 


III 


IHll' 


!  35a    Definitton 

A  contract  of  employment  is  a  contract  for  the  performance 
of  services,  by  the  terms  of  which  the  employer  is  to  direct  how 
tibe  work  IS  to  be  done  and  what  results  are  to  be  accomplished. 
This  personal  direction  by  the  employer  is  the  essential  fea- 
ture. A  contract  with  a  tailor  for  a  suit  of  clothes  is  not  a 
contract  of  employment  because  it  lacks  the  element  of  per- 
sonal supervision. 

In  the  older  law  books  the  subject  of  this  part  of  the  book 
was  treated  under  the  head  of  "Master  and  Servant "  It  is 
far  from  modem  habits  of  thought  and  speech  to  consider 
a  member  ol  a  labor  union  or  the  auditor  of  a  corporation  as 
a  servant.  Hence,  the  obsolete  terms  are  not  used  in  this 
work. 

§  359.    What  Constitiites  a  Contract  of  Employment 

There  must  be  an  agreement  by  competent  parties.  One 
party  agrees  to  perform  services  for  the  other.  There  must 
be  a  consideration.  One  party  gives  his  services  in  return  for 
the  payment  of  wages  or  salary  by  the  other  party.  The  con- 
tract may  be  expressed  or  implied.  If  a  man  does  any  work 
for  another  on  request,  the  law  wiU  usually  imply  a  contract 
to  pay  a  reasonable  compensation.  If  services  are  rendered 
for  another  with  his  knowledge  and  acquiescence,  a  contract 
is  usually  implied. 

A  contract  to  do  work  on  shares  is  an  agreement  by  one 
party  to  perform  some  labor,  such  as  raising  a  crop  for  a 
share  m  the  crop.  For  instance,  a  man  may  agree  to  cu't  grass 
for  a  land  owner  for  half  the  grass.  Such  contracts  are  com- 
mon  in  farming  communities.  The  fact  that  the  wages  arc 
paid  otherwise  than  in  money  does  not  alter  the  relationship 

As  has  been  stated  (§  258),  the  peculiar  and  distinguishing 
element  of  the  contract  of  employment  is  that  the  party  for 
whom  the  services  are  to  be  performed  has  the  right  to  direct 


the  other  party  in  what  he  is  to  do.  A  contract  to  build  a  house 
where  the  builder  merely  agrees  to  construct  a  house  according 
to  certain  plans  to  be  furnished  by  an  architect  and  to  the 
satisfaction  of  the  person  for  whom  he  is  building  it,  is  not  a 
contract  of  employment.  But  where  a  man  agrees  to  do  the 
manual  work  of  building  the  house  under  another's  orders  as 
to  how  it  shall  be  done,  he  is  that  other  man's  employee. 

The  essential  element  of  the  relation  of  employer  and 
employee  is  the  right  of  the  employer  to  give  orders  to  and 
direct  the  employee  in  the  performance  of  his  work. 

Most  of  the  work  on  public  buildings,  roads,  canals,  etc., 
is  done  by  letting  the  entire  contract  to  a  contractor  who  in 
turn  lets  out  parts  of  it  to  subcontractors.  The  question  of  the 
liability  of  the  main  contractor  to  the  employees  of  his  sub- 
contractors rests  on  this  principle.  If  the  employees  are  taking 
orders  from  his  foremen,  the  chief  contractor  is  liable  to  them 
as  he  would  be  to  his  own  employees  (see  §  271 ).  If  the  sub- 
contractors are  to  do  their  own  directing  and  give  the  orders 
to  their  own  men,  being  responsible  to  the  main  contractor 
only  for  the  finished  results  of  the  work,  then  he  is  not  liable 
to  their  workmen  any  more  than  he  would  be  to  outsiders. 

§260.    Independent  Contractors 

Independent  contractors  are  not  employees.  An  inde- 
pendent contractor  is  a  man  who  engages  with  another  to  hand 
over  to  him  in  completed  form  some  particular  piece  of  work, 
and  to  receive  a  certain  sum  of  money  for  doing  it.  In  build- 
ing, the  excavating,  the  mason  work,  the  plumbing,  and  the 
painting  are  usually  undertaken  by  such  independent  con- 
tractors. 

Where  a  contractor  merely  engages  to  do  a  piece  of  work 
for  another  and  retains  the  right  to  direct  its  doing  himself 
through  his  own  foremen,  his  employees  do  not  ordinarily 
stand  in  the  relation  of  employees  to  the  person  with  whom  he 


304 


EMPLOYMENT 


has  contracted.    Sometimes,  however,  the  law  says  they  shall 

Most  of  the  state  enactments  as  to  employers'  liability  and 
^Ws  compensation  give  employees'o/independ  nT  i:. 
toactors  the  same  nghts  against  the  principal  contractor  that 
his  own  workmen  have.  ""tractor  mat 

§  36i.    Interpretation  of  Contract 

U.h^t  Tjf  u  ^  ""P'°y™^»t  is  to  be  interpreted  in  the 

Ihe  same  rules  that  apply  to  contracts  in  general  govern  this 
type  of  contract.     (See  8  40  )     In  raeo  th»  „      •  • 
indpfin.f.  ♦!,-  „      .•         ^  ^y--'     ^"  *^ase  the  provisions  are 
indefinite,  the  question  as  to  when  it  will  be  understood  to 
begin  and  to  end  is  answered  in  §  §  265.  266        ^^"^^"^  ^ 
Any  weU-recognized  customs  in  the  particular  trade  or 
busmess  to  which  the  contract  under  coLderatL  'eiateT 
sudi  as  a  custom  of  paying  a  certain  percentage  as   omm   s  on 
o  msurance  agents,  etc..  wiU  be  considered  in  seekTng  to  Sd 
the  meaning  of  the  contract.  ^  °  *"* 

§262     An  Express  Contract  Camiot  Be  Proved  by  Custom 
it  UnT""^''!  '°  ^r'  ^  "P*"^'^  ~"t'^<=t  of  employment 

fs  SiL  S  m^ir''  '"  ""^"^  ^"^^'^  ''''''''''■    The  house 
is  entifled  to  make  a  separate  contract  with  every  emolovee- 

the  duties  and  rights  of  each  employee  are  regdl^ted  Jv  S 
contact  without  regard  to  dealings  with  otSerXtyeef 

For  instance,  m  an  Alabama  case,  an  employee  dafmed  that 
there  was  a  custom  in  the  firm  to  engage  emDlov!«K    .? 


THE  CONTRACT  OF  EMPLOYMENT 


305 


Sometimes  provisions  may  be  read  into  a  contract  from 
customs  which  are  universally  known  in  the  line  of  business  in 
which  the  contract  of  employment  was  made.  For  instance, 
if  there  was  a  universal  custom  to  pay  employees  by  the  week, 
the  court  might  find  from  the  testimony  that  both  parties  had 
it  in  mind  at  the  time  of  the  making  of  the  contract.  In  order 
to  prove  this  to  be  the  fact,  however,  the  custom  must  be  so 
universal  that  everybody  in  the  business  ought  to  know  of  it, 
and  either  party  may  prove  that  they  expressly  agreed  other- 


wise. 


Note: 
I. 


In  making  a  contract,  it  is  not  safe  to  rely  on  custom. 
All  provisions  of  the  contract  should  be  stated 
expressly. 


§  263.    Wages 

Wages  are  payable  by  the  day,  the  week,  or  the  month 
where  the  contract  expressly  provides  that  they  shall  be,  or 
where  it  is  the  custom  to  pay  in  that  way,  so  that  the  parties 
might  be  supposed  to  have  intended  to  make  it  part  of  their 
agreement.  If  there  were  no  such  custom  and  the  contract 
said  nothing  about  it,  the  employee  would  not  be  entitled  to  his 
wages  until  the  end  of  the  entire  period  for  which  the  contract 
was  to  run. 

The  custom  of  paying  wages  at  short  periods,  by  the  week 
or  month  for  example,  is  pretty  well  established.  If  the  parties 
desire  to  arrange  otherwise,  it  should  be  so  stated  in  the  con- 
tract. 

§  264.    Modification  of  Contract 

The  contract  of  employment,  like  every  other  contract,  may 
be  altered  by  the  consent  of  all  the  parties  to  it.  The  question 
of  whether  there  must  be  consideration  or  not,  or  what  con- 


3o6 


EMPLOYMENT 


stitutes  consideration  for  the  new  contract,  has  already  been 
taken  up  under  the  subject  of  contracts  in  ge;eral.    (  S^g  ^ 

§  »65.    When  Contract  Begins 

Where  the  contract  does  not  state  when  it  is  to  berin  it 

k^eSr  for  r^  '  il"*"  ''  ""P'^y"'  t°  »«  as  book- 

bSitrsSf  °  '"^"  "^  "°''  °'  ^'^^  •^'^  -^^'^  -tU  the 
Nate: 

I.    Both  parties  should  see  that  the  time  when  the  em- 
ployment is  to  begin  is  made  part  of  the  contract. 

§  a66.    Tennination  of  Contract 

end.  t  w  II  end  when  either  party  desires  to  terminate  it     If  a 
definite  time  is  fixed  for  the  payment  of  wages,  snh  as  a 

SiJ^  y;  '  "'f '  "^^  ^^"^^^^^  ^*»  ^-^  ^-  -t  least 
that  penod  of  time,  and  camiot  be  terminated  before     If  the 

Z^^rr  -t^  "^^  ^''^'  '"""^'  ^'^  y^^^'  ^^  cannot  be  ter. 
mmated  by  either  party  except  at  the  termination  of  such  a 

penod.  If  the  employer  discharges  the  employee  (excS  for 
good  cause  before  the  end  of  such  a  perioS,  he  w  U  SuaWe 
for  the  employee's  wages  until  the  end  of  the  period 

felt lu^l  """^^r""  ^"''^"'  ^"  "^^  P^"^'  ^'  ^i"'  strictly,  for. 
feit  all  claim  for  compensation.    Some  courts  allow  in  such 

SrJvHf"  ^"'"^^t^^'PWee  can  show  for  his  services, 
less  any  damage  caused  by  his  leaving  before  his  time  was  up 
*     Notes: 

I.    A  defmite  understanding  as  to  the  duration  of  the 
employment  is  better  for  both  employer  and  em- 


THE  CONTRACT  OF  EMPLOYMENT 


307 


ployee.  It  will  avoid  unpleasant  disputes  and  may 
save  a  lawsuit. 
2.  Both  employer  and  employee  should  act  fairly  about 
terminating  the  employment.  To  leave  without 
notice  at  end  of  period  or  to  discharge  without 
notice  at  end  of  period  is  in  most  cases  unfair. 

§267.    Termination  of  Contract  by  Breach 

A  contract  of  employment  may  end  either  when  it  is  com- 
pleted, or  when  it  is  broken  by  either  of  the  parties  to  it. 

What  the  Employee  May  Do.  On  the  part  of  the  em- 
ployee, the  contract  may  be  broken  either  by  leaving  the 
employment  or  by  doing  something  which  would  justify  his 
employer  in  discharging  him — by  acts  of  disobedience  or  insub- 
ordination, or  by  acting  contrary  to  his  employer's  interests. 

The  disobedience  or  insubordination  must  be  such  as  will 
prevent  the  employer  from  being  able  to  rely  on  the  employee 
to  do  good  work.  And  the  employee  is  under  no  obligation 
to  obey  an  order  to  do  anything  not  called  for  by  his  contract. 
A  department  store  owner  discharged  the  head  of  his  dress- 
making department  because  she  refused  to  obey  his  orders 
to  perform  the  work  of  a  seamstress.  The  court  held  the 
discharge  a  breach  of  contract. 

Either  incompetence  or  habitual  drunkenness  constitutes 
a  breach  of  the  contract.  The  employee  undertakes  to  be 
only  reasonably  competent,  however,  and  he  cannot  be  dis- 
charged for  not  being  an  expert,  unless  there  is  some  express 
understanding  calling  for  a  specified  degree  of  skill. 

An  illness  of  the  employee  which  keeps  him  from  work 
also  puts  an  end  to  the  contract,  though  it  may  hardly  be  re- 
garded as  a  breach. 

What  the  Employer  May  Do.  The  employer  may  break 
the  contract  either  by  discharging  the  employee  without  justi- 
fication, or  by  rendering  the  work  in  some  way  unsafe  to  his 


1^, 


3o8 


EMPLOYMENT 


THE  CONTRACT  OF  EMPLOYMENT 


309 


I ' 


health.  h.s  hfe.  or  his  morals.     Or  he  may  break  it  by  re- 
qmnng  the  employee  to  work  for  less  wages  Aan  we     agre^ 
upon   or  to  perform  different  services.    He  can  make  noni 
of  these  requirements  without  the  employee's  consent 
lations'^nr''  ^^TP'^y^*^"*  is  one  involving  personal  re- 

partTe       TheTr    ^.  r^^  '^  "*^^  °^  the  contracting 
part.es.    Therefore,  ,f  the  employer  sells  out  his  business  to 

other  parues.  h.s  employees  cannot  be  compelled  to  work  fo^ 

a  Lrcr-f  "^  r'°^^^ ''''-  ^  p^^*--  -"^o- 

far  Z  th?;     ,     '    ""  ^'°"'''  incorporated,  the  result,  so 

in^In'orh-7ff  ^  or  insolvency  of  the  employer  or  the  wind- 
mg  up  of  h,s  affairs  by  a  public  officer,  as  in  the  case  of  a 

ilr.'".^"'"''""  '"'"P""^  '"  ^S*^  °f  »«>Ivency.  puts 
an  end  to  the  contract.  ^ 

will?.'.  W.*^*  f  7"'°^"'  ''^  "°  ^^'•'^  fo"-  «n  employee 
wdl  not  justify  a  discharge  before  the  end  of  the  contract 

Notes: 

1.  In  selling  out  a  business,  or  changing  the  nature  of 

a  business,  an  announcement  of  the  new  arran^e- 
ment  should  always  be  made  to  the  employees. 

2.  Remainmg  m  the  employment  with  knowledge  of 

the  change  amounts  to  an  acceptance  of  the  new 
arrangement. 

§a68.    Rights  and  Remedies 

In  any  case,  except  where  the  employee  has  been  guilty 
o  actua  disloyalty  to  his  employer  by  engaging  in  compel 
mion  wuh  him,  or  has  offered  physical  violence  to  his  emt 

whfrh    .''  Tf  '"  '^'  ^'^'^'  '"^'^y^  ^'  commissions 
which  he  has  already  earned,  and,  if  a  bonus  has  been  de- 

dared,  he  is  entitled  to  that  too.     This  is  true  whether  the 


breach  of  the  contract  is  due  to  his  own  action  or  to  that  of 
his  employer.     (See  also  §  273.) 

Employee's  Rights  to  Damages.  Where  the  employer  is 
guilty  of  a  breach  of  the  contract,  the  employee  is  entitled  to 
damages.  He  may  sue  at  once  and  collect  what  is  already 
due  him,  or  he  may  wait  until  the  contract  period  is  over 
and  then  sue  for  the  total  damages  he  has  sustained.  It  is 
his  duty  to  try  to  obtain  other  employment,  and  the  damages 
which  he  may  recover  are  limited  to  the  difference  between 
the  wages  he  would  have  received  and  any  sums  which  he 
has  been  able  to  earn  since. 

Where  the  wages  or  salary  are  to  be  paid  at  stated  periods, 
the  courts  in  some  states  allow  the  employee  to  sue  at  the  end 
of  each  period  for  the  amount  then  due  him ;  as  for  instance, 
where  the  wages  are  payable  by  the  month,  at  the  end  of 
each  month.  In  other  states  the  employee  may  bring  only 
one  action,  and  if  he  sues  before  the  end  of  the  contract 
period  he  may  recover  only  such  damages  as  he  has  suffered 
up  to  that  time,  and  will  have  no  further  remedy. 

Where  a  contract  of  employment  provides  for  notice  on 
both  sides,  the  employer  must  give  the  required  notice  or  pay 
the  employee  wages  for  the  period  of  notice  before  discharg- 
ing him;  and  if  he  fails  to  do  this  the  employee  is  entitled  to 
recover  this  amount  as  damages. 

Employer's  Grounds  for  Damages.  If  the  employee  breaks 
the  contract,  the  employer  is  entitled  to  recover  any  damages 
he  can  prove.  He  must  prove  that  it  is  impossible  for  him  to 
procure  anyone  to  do  the  work  in  the  employee's  place.  He 
cannot  recover  any  damages  if  the  employee  leaves  his  em- 
ployment because  of  illness.  He  will  be  entitled  to  retain 
wages  equal  to  the  amount  of  notice  the  employee  is  required 
to  give,  only  in  case  there  was  such  a  provision  in  the  contract. 

Interfering  Between  an  Employer  and  Employee.     If  a 
third  person,  knowing  that  a  workman  is  employed  by  another 


3IO 


EMPLOYMENT 


l^™'" 


and  that  the  term  of  his  employment  is  not  over  induces  an 
employee  to  leave  his  employer  before  the  clm;act  of  e^ 
Ployment  has  expired  the  third  person  is  responsibe  toX 
^P^oyer  m  damages  should  he  have  acted  with  full  knowkd^e 
of  the  circumstances.  Knowieage 

with"hfm*ifter'Tt-"'^Tu'"  ""^'^^^  *°  '"^'^  «  ^^n^^ct 
r„  th.        ,         .  ^^  °^  •"'  '""^-^^  ^'th  Ws  employer  is 

fL  f<S,"  ?    contract  himself  and  then  obtains  employment 
If  a  third  person  succeeds  in  getting  an  employer  to  dis 

tt:^^n""fet  'Tr ''- '  -^^'^  °^  ^^^ 

uiat  person.    But  if  the  third  person  merely  attemots  to  in 
fluence  Ae  employer  and  is  unsuccessful,  the  e^S  h"  no" 
ground  for  action.  ""pioyee  nas  no 

R^^ences.  The  employee  has  no  legal  right  to  a 
reference.  But  nowadays  the  custom  of  givinf reference  has 
become  m  some  places  so  universal  that  h  ah^oS  S^Zts  to 
an  miderstood  part  of  the  contract  *° 

Note: 

I.  Contracts  providing  for  notice  should  specify  a 
definite  toe  and  a  definite  amount  of  wages  to 
be  forfeited  on  the  nart  nt  n,-         •  , 

fa;i..~  *^        ""  ine  part  of  the  employee  for 
lauure  to  give  noUce. 

§a69.    Employment  After  Expiration  of  Contract 

and^""'  ?  '°"*'''*  ''*'  ^  •'^'^™**  t™«  for  its  termination 
and  the  employee  continues  in  the  employment  after™  at  ti°  I 

without  any  new  understanding,  the'ge^ral^e  Js  C" 
Ae  work  whid,  he  is  doing  is  the  same,  he  is  supposS  to  hive 
been  employed  on  the  same  terms  ' 

The  new  contract  in  such  case  will  be  for  the  same  time 


THE  CONTRACT  OF  EMPLOYMENT 


311 


as  the  old.  For  instance,  if  a  workman  hired  for  a  year  re- 
mains in  his  employment  into  the  second  year  without  any 
new  agreement,  it  will  be  presumed  that  he  was  working  under 
an  agreement  for  another  year ;  and  it  will  be  a  breach  of  the 
contract,  for  which  the  employer  will  be  liable  in  damages,  if 
he  discharges  the  workman  before  the  end  of  this  time.  The 
employer,  however,  may,  if  he  can,  show  facts  to  prove  that 
there  was  no  such  understanding. 

Note: 

I.     In  this  case  again,  it  is  safer  to  have  a  definite 
understanding  about  any  renewal  of  the  contract. 


Review  Questions 

1.  What  is  the  distinction  between  an  employee  and  an  agent? 

2.  Is  a  salesman  working  on  commission  an  employee? 

3.  What  is  an  independent  contractor? 

4.  When  an  employee  is  working  by  the  week  or  month  and  leaves 

without  cause  during  the  period,  what  are  his  legal  rights  in 
your  state? 

5.  What  causes  would  justify  the  discharge  of  an  employee?     In 

such  cases  would  the  employee  be  entitled  to  compensation 

up  to  the  time  of  discharge? 
C    What  causes  would  justify  an  employee  in  leaving  before  the 

expiration  of  his  period  of  employment? 
7.    In  what  ways  in  your  state  may  an  employee  seek  redress  for 

an  employer's  breach  of  contract  for  a  fixed  salary  payable 

at  regular  intervals? 


liiW 


CHAPTER  XLI 

RELATIONS  OF  PARTIES 
§  370.    Duties  of  Employee  to  Employer 

repr«em7h1Zl''f  T""^  '"'''  *"^  *=°"*"^  «'  employment 
represents  himself  to  be  reasonably  competent  for  his  work 

«lw  J5  ""^fj^''  J-e  is  not  r'equired  to  havrt^y 

E    X' T    ^  f '"•  ^  '•^^"^"'^  *'--  to  'earn  its 
duties.     Where  the  work  requires  skilled  labor,  such  as  in 

han^ng  machmery  etc.  the  employee  is  requir;i  to  be  J 

ST^LZitlfZ  TT^I--  ''  ^"^  '^Sh  degree  of  sk  1 
IS  reqwred,  it  must  be  stipulated  in  the  contract 

^  t^^S^,^S^  f ''^'^^  '•^  '^^"^  l'*^  *d  not  come 

Z^.Zi"^  ""^"'"^  °*  •"'•"'  *'  '^^"rt  '"'"le  them  Z 

pitch  as  well  as  the  average  professional  player « 

n,n  Jr'  T."^/  P™'^'^°"  '"  ^'^  *^°°t"^t  that  the  employee 
2Z^e^"^°Vl  *'  ""P'°^"-  ^"  ™-'  «t«t«  even 
satosfaction  before  he  may  discharge  his  employee. 

refu^^s  'ut  ""^  r  ~"P^  ""  ""P'°y"  to  ^ork  if  he 

Ae  b'ich  of  L^To  f'.'T  P"^"  *^'  ''^  ''=«  ^"ff-ed  by 
tne  breach  of  the  contract,  the  employee  is  liable  to  the  em 

The  employee  must  perform  the  services  stipulated  in  the 

.a  L^T^^*-*  ««•»  -  «^««.  .«  Md.  3.,;  as  Alt  .,,;  ^  a„.  S.  Hc„  ,04; 

31a 


RELATIONS  OF  PARTIES 


313 


contract.  It  is  not  his  fault,  however,  if  their  value  to  the 
employer  is  destroyed  by  the  act  of  some  third  person,  and 
the  employer  is  none  the  less  bound  to  pay  him  the  wages 
agreed  upon  for  them.  For  instance,  in  a  certain  Alabama 
case  one  Parham  employed  a  man  named  Tucker  to  go  into 
Mississippi  and  get  back  some  slaves  for  him.  Tucker  got 
them  back  and  they  were  immediately  attached  by  a  creditor. 
Tucker  had  nevertheless  fulfilled  his  contract.^ 

Loyalty  and  Obedience,  Other  duties  which  the  employee 
owes  his  employer  are  those  of  loyalty  and  obedience.  He 
must  not  do  anything  which  may  injure  his  employer's  busi- 
ness, and  has  no  right  to  engage  in  any  employment  which 
is  in  competition  with  it.  Otherwise,  the  employee  has  a  right 
to  use  his  spare  time  as  he  likes,  unless  he  has  agreed  by  the 
contract  to  devote  his  entire  time  and  attention  to  the  business. 

Sometimes,  even  in  such  a  case,  it  has  been  held  that  the 
employee  has  a  right  to  do  something  else  which  does  not 
injure  his  employer  where  the  employer  fails  to  furnish  him 
with  work.  In  the  California  case  of  Stone  v.  Bancroft,' 
Stone,  a  publisher  who  had  been  employed  by  Bancroft  to 
devote  his  entire  time  to  publishing  the  historian's  works,  did 
some  work  on  a  medical  book  while  he  was  waiting  for  Ban- 
croft to  furnish  him  the  manuscript  The  court  held  that 
Bancroft  cotdd  not  complain,  since  he  had  given  no  work  to 
the  publisher.  Bancroft  was,  of  course,  liable  to  pay  him  at 
the  contract  rate  for  the  entire  period  of  the  engagement 

Part  of  the  employee's  duty  of  fidelity  to  his  employer 
consists  in  keeping  to  himself  any  business  matters  of  a  con- 
fidential nature.  If  an  employee  discloses  any  secret  processes 
— what  are  known  as  "trade  secrets" — ^he  is  liable  to  his  em- 
ployer for  damages. 

Law  clerks  and  lawyers'  stenographers  are  privileged  from 


'Wolfe  ▼.   Parham,    18  Ala.   44 !• 

«  139  Gal.   78  Pac.   io«7;  7»  Pac.   717. 


3^4 


EMPLOYMENT 


RELATIONS  OF  PARTIES 


31S 


1 


ti " 


testifying  on  the  witness  stand  to  any  confidential  communica- 
tions f roni  clients.  This  privilege  does  not  extend  to  ordinary 
stenographers,  bookkeepers,  or  clerks  on  the  witness  stand. 

Ltabihty  of  Employer  in  Using  Force.  The  duty  of 
obedience  cannot  be  enforced  by  the  use  of  violence  on  the 
part  of  the  employer.  Formerly  a  master  was  allowed  to 
chastise  his  apprentice  on  the  ground  that  he  stood  in  loco 
parentts  (in  the  place  of  a  parent)  to  him.  But  there  is  no 
justification  for  an  employer  laying  his  hands  on  his  employee 
nowadays,  and  he  would  be  liable  to  an  action  for  assault 
and  battery  if  he  did  so. 

Inventions.  The  patent  rights  to  inventions  which  the 
employee  makes  in  the  course  of  his  work  belong  to  him  and 
not  to  his  employer,  but  it  is  probable  that  he  would  have  to 
give  the  employer  a  right  to  make  use  of  the  inventions  It  is 
common  nowadays  for  employers  to  make  some  provision  in 
the  contract  of  employment  for  taking  over  inventions  made 
Dy  their  employees. 


Notes: 


I. 


Z, 


If  the  employer  wishes  anything  more  than  ordinary 
skin  from  his  employee,  he  must  include  the  re- 
quirement in  the  contract. 

If  the  employer  wishes  to  make  any  arrangement 
about  inventions,  he  should  come  to  an  agreement 
with  his  employee  and  have  that  included  in  the 
contract. 


§  371.    Duties  of  Emplojrer  to  Employee 

The  employer  owes  it  to  his  employees  to  provide  a  safe 
healthful,  and  suitable  place  to  work  in,  and  proper  tools  to 
work  with.  To  do  this,  he  must  arrange  for  suitable  inspec- 
tion to  see  that  things  are  in  the  proper  condition  and  remain 
And  it  is  his  duty  to  hire  competent  fellow-employees. 


An  employee  is  not  required  to  expose  himself  to  the  danger 
of  working  with  drunken,  reckless,  or  incompetent  asso- 
ciates. 

Responsibility  of  Employer,  These  duties  of  the  employer 
cannot  be  shirked.  He  is  always  responsible  for  failure  to 
perform  them,  no  matter  whom  he  appoints  to  attend  to  them. 
He  must  keep  buildings,  etc.,  in  proper  repair,  examine  ma- 
chinery to  see  that  there  are  no  dangerous  defects  in  it,  and 
inspect  everything  that  comes  to  him  from  any  other  person 
to  see  that  it  is  in  safe  condition  before  giving  it  to  his  em- 
ployees to  work  with. 

Co-operation  of  Employees  with  Employers.  The  law  is 
reasonable.  The  employer  is  not  responsible  for  an  injury 
arising  from  an  unknown  defect,  if  he  has  used  reasonable 
and  proper  inspection.  He  cannot  be  required  to  be  continu- 
ally inspecting;  therefore  it  is  the  duty  of  employees  to  inform 
the  employer  of  any  defects  which  they  notice.  If  they  do 
not,  and  suffer  injuries,  they  must  usually  take  the  conse- 
quences; but  at  the  same  time  the  employer  is  in  a  better 
position  to  be  aware  of  defects  than  the  employee,  and  where 
the  defect  is  a  hidden  one,  it  is  the  employer's  and  not  the 
employee's  business  to  discover  it. 

It  might  be  well  to  state  that  there  are  many  regulations 
(hours,  sanitation,  etc.)  which  the  statutes  of  each  state  re- 
quire, and  that  often  it  is  required  to  post  a  copy  of  the  law 
on  the  walls  of  store  or  factory.  (See  also  §§  279,  280,  on 
employers'  liability  and  workmen's  compensation  acts.) 

Limits  of  Liability.  The  employer  will  not  be  liable  for 
the  consequences  of  defects  which  nobody  could  have  fore- 
seen and  prevented,  such  as  the  flying  off  of  slivers  of  steel 
from  crystallization,  a  defect  which  cannot  be  discovered  with- 
out a  chemical  test  and  the  breaking  up  of  the  steel  in  order  to 
perform  it.  And  he  is  not  obliged  to  employ  experts  specially 
to  make  chemical  and  other  scientific  tests.     He  is  required 


m 


i 


316 


EMPLOYMENT 


m 

to  make  only  the  ordinary  tests  employed  by  those  engaged 
m  that  occupation. 

If  an  employee  is  competent  when  hired  and  afterwards 
becomes  reckless,  drunken,  or  incompetent,  and  his  acts  take 
place  without  the  knowledge  of  the  foremen  or  superintend- 
ents, though  these  exercise  reasonable  supervision,  the  em- 
ployer cannot  be  made  liable  for  the  consequences  of  such 
acts. 

Provmon  for  Work,  The  employer  must  provide  enough 
tTOls  and  employees  to  perform  the  work  with  safety  to  all 
And  he  must  make  proper  rules  for  the  conduct  of  the  work 
and  see  that  they  are  carried  out.  Where  the  law  requires 
safety  appliances,  seats  for  women,  etc.,  the  employer  must 
comply  with  it;  but  in  the  absence  of  any  statute  on  the  subject 
he  IS  not  required  to  use  the  latest  and  best  appliances  if  those 
which  he  has  are  such  as  are  in  ordinary  use  and  are  reason- 
ably safe. 

InstrucHon  of  Employees.  It  is  his  duty  to  instruct  young 
and  mexperienced  employees  in  the  proper  way  to  make  use 
of  tools  and  machinery,  and  to  warn  them  of  any  dangers 
He  IS  not  responsible  if  his  employees  disobey  his  orders  and 
are  mjured  in  consequence;  but  if  their  disobedience  has  been 
going  on  for  some  time,  so  that  it  ought  to  have  been  known 
to  the  foremen  and  others  in  charge  if  they  had  been  reason- 
ably diligent  in  their  duties,  or  if  it  has  been  going  on  with 
their  knowledge  and  consent,  the  employer  will  be  considered 
to  have  consented  to  it  and  wiU  be  responsible  for  resulting 
injunes  as  though  the  rules  had  never  been  made. 

If  he  aUows  young  and  inexperienced  employees  to  work 
m  places  which  tempt  them  to  take  risks,  it  has  been  held 
that  he  will  be  responsible  for  any  injuries  they  may  suffer 
m  consequence.  A  case  illustrating  this  point  was  that  of  a 
young  boy  set  to  work  turning  a  wheel  near  the  log  carriage 
m  a  saw  mill.    The  court  said  that  it  was  tempting  him  to 


RELATIONS  OF  PARTIES 


317 


follow  his  natural  instincts  to  ride  up  and  down  on  the  log 
carriage,  and  that  the  employer  was  responsible  for  injuries 
for  putting  him  in  such  a  place.* 

Employees  Must  Take  Reasonable  Care.  After  the 
employer  has  seen  to  the  furnishing  of  sufficient  and  proper 
tools  and  a  safe  place  to  work,  he  is  not  responsible  if  the 
workmen  themselves  misuse  them.  When  unfinished  appli- 
ances, such  as  molds  furnished  in  two  or  more  parts  to  be 
put  together,  or  lumber  furnished  for  making  a  scaffold,  are 
given  to  the  workmen  to  be  put  together,  if  the  men  do  the 
work  improperly  the  injuries  are  not  the  employer's  fault. 
But  a  permanent  scaffold,  such  as  those  which  are  used  to 
hold  up  steel  framework  until  it  is  entirely  finished,  is  part 
of  the  place  to  work.  The  employer  would  be  responsible  for 
its  safety  to  any  workmen  other  than  those  who  erected  the 
scaffold. 

Where  the  workmen  furnish  tools  and  appliances,  the  em- 
ployer is  not  responsible  for  the  condition  of  such  tools,  nor 
for  accidents  which  may  result  from  using  them. 

Necessity  for  Inspection.  Where  the  work  is  construction 
work,  so  that  the  workmen  are  constantly  altering  it  them- 
selves, the  employer  is  liable  only  for  proper  and  reasonable 
inspection  from  time  to  time,  and  not  for  accidents  that  occur 
from  some  alteration  the  men  have  made  themselves.  But 
when  men  are  working  in  a  position  of  danger  where  they 
cannot  be  at  the  same  time  on  the  lookout  for  the  danger  and 
engaged  in  work,  someone  must  be  stationed  to  warn  them. 
And,  in  the  case  of  railway  work,  where  there  are  low  bridges 
which  are  dangerous  to  brakemen  who  must  ride  on  top  of 
freight  cars  in  order  to  look  after  the  brakes,  some  system  of 
"tell-tales"  or  signals  to  warn  them  to  stoop  and  avoid  danger 
is  necessary. 

Further  Liabilities  of  Employers.    Employees  are  entitled 


*  Marbury  Lumber  Co.  v.  Westbrook,  121  Ala.  179;  25  So.  793;  77  Am.  St.  Rep.  17. 


3i8 


EMPLOYMENT 


to  all  of  this  protection  not  merely  while  they  arc  at  work, 
but  also  while  they  are  coming  to  or  going  from  their  work 
over  the  employer's  premises.  Where  a  railroad  company 
runs  its  trains  over  tracks  belonging  to  another  company,  and 
an  employee  is  injured  in  an  accident  due  to  defects  in  the 
track,  the  company  is  nevertheless  liable  to  the  employee.  It 
is  as  much  its  business  to  inspect  and  see  that  the  tracks  over 
which  it  requires  its  employees  to  pass  are  in  good  condition, 
as  it  is  for  it  to  inspect  cars  whidi  it  receives  from  another 
company  to  see  that  they  are  in  good  condition  before  allow- 
ing the  employees  to  handle  them. 

If  an  employee  of  the  company  which  owned  the  tracks 
were  injured  by  any  carelessness  m  running  a  train  of  the 
renting  company,  however,  the  company  that  owned  the  train 
and  not  his  own  company  would  be  liable  to  him  for  his  in- 
juries. His  own  company  could  have  no  control  over  the 
other  company's  trains,  while  the  renting  company  would  have 
control  over  the  tracks  it  had  rented. 

Special  Contracts,  It  is  not  safe  for  an  employer  to  rely 
on  special  contracts  relieving  him  from  liability.  They  are 
generally  contrary  to  some  special  statute,  such  as  the  Work- 
men's Compensation  Act,  for  instance,  or  else  will  be  held 
contrary  to  public  policy. 

Notes: 

I.  The  careful  employer  makes  use  of  all  the  safe- 
guards possible  for  his  employees,  not  merely  as 
a  matter  of  humanity,  but  as  the  cheapest  policy 
in  the  end. 
The  theory  of  the  law  in  the  matter  of  safeguards 
is  excellent.  The  practice  in  many  cases  is  bad. 
The  workman  is  not  usually  able  to  enforce  the 
law  against  his  employer  and  loses  his  job  if  he 
tries. 


m* 


RELATIONS  OF  PARTIES 


319 


§  272.    Presumption  with  Regard  to  Joint  Owners 

When  a  party  is  hired  to  work  in  an  enterprise  in  which 
two  or  more  parties  are  jointly  interested,  the  presumption 
is  that  he  is  the  employee  of  both,  and  may  hold  either  or 
both  liable  for  the  duties  owed  to  him  by  an  employer. 

In  one  case,  an  employee  was  hired  by  Rumsey,  one  of 
the  joint  owners,  to  work  on  a  steamboat,  and  received  all 
his  instructions  from  him.  McMahon,  the  other  joint  owner, 
never  came  on  the  boat  nor  had  any  relations  with  the  em- 
ployee. But  the  court  held  him  liable  for  damages  for  injuries 
to  the  employee.** 


§  273.    Wages 

Wages  are  the  compensation  which  the  employee  receives 
for  his  services.  He  may  be  paid  in  the  form  of  a  salary,  or 
a  fixed  wage,  or  "by  the  piece" ;  that  is,  the  employee  may  be 
paid  a  certain  fixed  amount  per  dozen,  etc.,  for  the  work  he 
turns  out.  He  may  be  paid  in  the  form  of  commissions, 
i.e.,  a  per  cent  of  the  price  of  goods  sold,  or  of  the  amount  of 
an  insurance  policy,  etc.  The  amount  of  wages  is  determined 
by  the  agreement. 

Where  the  wages,  or  part  of  the  wages,  consist  of  net 
profits,  the  amount  of  the  employee's  salary  must  not  be  de- 
ducted from  the  gross  profits  in  computing  them.  Nor  may 
interest  on  temporary  loans  be  deducted.  The  employer  can- 
not take  out  for  himself  interest  on  his  investment,  before 
computing  the  net  profits.' 

Wages  must  be  distinguished  from  a  bonus.  A  bonus  is 
really  a  gift  made  by  the  employer  to  the  employee.  He  may 
give  it  in  the  form  of  a  reward  for  good  work  or  may  divide 
a  certain  percentage  of  the  profits  among  the  employees  at 
Christmas;  but  in  either  case  it  is  merely  a  gift  and  not 


1 


•  McMahon  v.  Davidson,  12  Minn.  357. 

•Morrow  v.  Murphy,  120  Mich.  204;  79  N.  W.  193;  80  N.  W.  255. 


320 


EMPLOYMENT 


anything  which  the  employee  has  earned  under  his  contract 
of  employment.  If  the  bonus  was  specified  in  the  contract  of 
employment,  so  that  when  earned  the  employee  could  bring 
suit  for  it,  it  would  be  a  misnomer  to  call  it  a  bonus.  It  would 
be  earned  compensation. 

The  employee  is  entitled  to  the  wages  which  he  has  already 
earned  even  though  his  employer  discharges  him  for  good 
cause,  unless  he  was  guilty  of  bad  faith  and  attempted  to 
injure  his  employer's  business  or  use  physical  violence 
against  his  employer.  A  superintendent  who  had  attempted 
to  sell  blooded  cattle  belonging  to  his  employer  for  less  than 
they  were  worth  was  refused  the  right  to  recover  unpaid 
wages.' 

Some  states  provide  by  law  that  wages  must  be  paid  in 
cash  and  make  it  a  criminal  offense  to  attempt  to  pay  in  orders 
on  the  company's  store  or  merchandise.  But  even  under  such 
laws,  the  custom  of  issuing  time  checks  which  are  redeemable 
in  money,  where  the  pay-days  are  put  at  reasonable  intervals 
and  not  made  purposely  inconvenient  to  force  the  laborers  to 
accept  time  checks,  is  permissible. 

Distinction  Between  Wages  and  Salaries.  These  laws  are 
generally  made  for  the  benefit  of  laborers  and  do  not  apply 
to  clerical  workers  who  draw  salaries  as  distinguished  from 
wages.  In  the  same  way,  the  wage-earners,  but  not  the  salary- 
earners,  are  given  in  most  states  the  right  to  collect  their 
wages  through  enforcing  a  lien  on  the  employer's  property. 

The  distinction  is  made  in  regard  to  manual  labor  as  op- 
posed to  any  other  sort.  Typesetters  and  printers  come  under 
the  head  of  manual  labor;  bookkeepers  and  proofreaders  do 
not. 

Overtime.  The  law  regulating  the  hours  of  labor  gives 
the  employer  no  right  to  overtime  on  the  part  of  the  workman 
unless  it  expressly  says  so.     Generally,  it  is  absolutely  for- 

'Von  Heyne  v.  Tomkint,  89  Minn.  77:  93  N.  W.  901;  5  L.  R.  A.  N.  S.  5*4. 


RELATIONS  OF  PARTIES 


321 


bidden  to  allow  employees  on  public  works  to  work  more  than 
the  time  specified,  i.e.,  eight  hours  a  day  in  New  York,  and 
private  employees  may  refuse  to  work  for  a  longer  time.  If 
employees  work  overtime  without  an  express  agreement  for 
additional  wages,  they  are  not  entitled  to  them,  and  if  the 
employer  permits  them  to  work  less  than  the  specified  number 
of  hours  in  any  day,  he  is  not  entitled  to  require  them  to  make 

it  up. 

Where  a  contract  of  employment  expires  and  the  employee 
continues  to  work  without  any  new  contract,  if  he  is  perform- 
ing the  same  kind  of  services  as  before,  he  will  be  entitled 
to  the  same  wages. 

Notes: 

1.  The  agreement  for  wages  should  not  be  left  in- 

definite as  to  hours,  overtime,  etc. 

2.  The  disa4vantage  of  the  single  laborer  in  any  dis- 

pute with  his  employer  has  caused  the  develop- 
ment of  the  labor  union  and  much  labor  legislation. 

3.  A  minor  has  usually  no  right  to  his  own  wages,  con- 

sequently an  employer  should  not  pay  them  to  him 
without  his  father's  consent,  or  he  may  find  him- 
self under  an  obligation  to  the  father.  The  wages 
should  be  paid  to  the  father,  or  his  written  con- 
sent to  their  payment  to  the  minor  obtained.  In 
New  York  the  statute  requires  the  father  to  give 
notice  if  he  claims  wages. 

§274.    Fines,  Deductions,  etc. 

Fines  can  be  imposed  only  for  offenses  in  the  course  of 
the  work.  In  the  case  of  Cross  v.  Detroit  Baseball  Club,^ 
Cross  was  fined  $75  for  using  bad  language  in  an  argument 


•  84   Mo.    App.    526, 


332 


EMPLOYMENT 


« 


With  the  manager  at  a  distance  from  the  grounds.    The  court 
refused  to  allow  the  club  to  collect  the  fine. 

Deductions  of  wages  for  leaving  without  giving  notice 
must  be  reasonable  in  amount  The  courts  have  held  that 
indefinite  deductions  of  aU  wages  then  due  are  unjust,  because 
they  give  the  employer  a  chance  to  take  advantage  of  his  em- 
ployees  by  withholding  their  wages  for  long  periods  of  time 

Fines  for  offenses  must  be  agreed  to  by  the  employee. 
They  should  be  mentioned  in  the  agreement  of  employment 
or  posted  in  the  rules  in  a  conspicuous  place;  and  the  em- 
ployee's attention  must  be  caUed  to  them  so  emphatically  that 
he  cannot  say  that  he  was  ignorant  of  what  they  were  Merely 
posting  up  rules  without  calUng  them  to  the  employee's  at- 
tention :s  insufficient. 


Notes: 


I. 


2. 


In  making  an  agreement  that  wages  may  be  deducted 
if  the  employee  leaves  without  giving  notice,  the 
exact  amount  to  be  deducted  should  always  be 
stated.  It  should  be  a  reasonable  amount,  as 
otherwise  the  courts  may  hold  the  agreement  un- 
fair and  refuse  to  enforce  it 

Where  fines  are  to  be  imposed,  it  is  best  to  have  a 
prmted  copy  of  the  rules  imposing  them  made  a 
part  of  the  contract  of  employment,  or  given  to 
the  employees  with  an  announcement  that  these 
are  rules  for  fines  which  they  should  read  care- 
fully. If  any  of  the  employees  are  illiterate,  the 
rules  should  be  explained. 


I. 

2. 


Review  Questions 
What  degree  of  skill  must  an  employee  have? 
Has  an  employer  any  rights  in  regard  to  the  spare  time  of  the 
employee? 


RELATIONS  OF  PARTIES 


323 


3.  Is  a  bookkeeper  privileged   from  testifying  as  to  confidential 

information  ? 

4.  What  is  the  law  as  to  inventions  made  by  an  employee,  where  no 

provision  has  been  made  in  the  contract? 

5.  What  are  the  obligations  of  the  employer?     If  he  fails,  what 

is  the  consequence? 

6.  What  circumstances  would  justify  discharge  and  forfeiture  of 

wages  due? 

7.  May  employees  be  fined  for  coming  late? 


m 


CHAPTER  XLII 

EMPLOYER'S  RESPONSIBILITY 

§  375.    Introductory 

^  Under  the  common  law,  the  employer's  responsibility  for 
injuries  to  his  employees  was  reduced  to  a  minimum. 

I.  "The  rule  as  to  the  assumption  of  risk"  held  that  if 
the  defects  of  equipment  were  such  that  the  employee  could 
see  them,  he  assumed  all  the  risk  by  taking  employment.  As 
a  man  who  needed  work  was  not  in  a  position  to  reject  it 
because  equipment  was  unsafe,  the  doctrine  prevented  a  multi- 
tude of  injured  workmen  from  receiving  damages.  (See 
§276.)^ 

2.  "The  rule  as  to  contributory  negligence"  relieved  the 
employer  from  any  responsibility  if  the  workman  had  himself 
been  in  any  way  careless.  Many  a  crippled  worker  was  de- 
feated in  the  courts  by  reason  of  this  rule.    (See  §  27^,) 

3.  "The  rule  as  to  fellow-servants"  was  a  particularly 
unjust  regulation.  If  the  carelessness  or  negligence  of  a  fel- 
low workman  caused  the  injur>',  the  hurt  man  had  no  com- 
pensation. He  did  not  hire  the  men  with  whom  he  worked, 
but  the  law  held  that  if  he  chose  to  work  with  them,  and 
they  were  careless  or  incompetent,  the  employer  who  had  hired 
them  was  relieved  of  all  responsibility.     (See  §  278.) 

The  injustice  of  these  rules  and  the  disadvantage  to  the 
injured  workman  when  he  tried  to  enforce  his  rights  in  the 
courts,  have  led  to  the  passage  of  many  laws  designed  to 
remedy  the  conditions.    There  are  two  classes  of  these  laws: 

1.    The  employers'  liability  laws,  which  aim  to  define  the 


EMPLOYER  S  RESPONSIBILITY 


325 


2. 


employers*  liability  and  to  modify  or  remove  the 
objectionable  common  law  rules. 
The  workmen's  compensation  laws,  which  try  to  sys- 
tematize the  responsibility  for  injury  and  to  provide 
something   in    the   nature   of    insurance    for   the 
wounded  and  bereaved  in  the  fields  of  industry. 
These  laws  proceed  on  the  theory  that  if  a  workman  is 
injured  from  any  cause,  there  is  a  loss  that  someone  must 
stand.     In  such  a  case,  it  seems  that  the  particular  industry 
should  care  for  those  who  were  injured  in  it,  and  that  the 
care  for  the  injured  should  be  made  part  of  the  expenses  of 
the  business,  so  that  careless  and  conscienceless  employers 
would  not  be  allowed  to  shirk  responsibility. 

§  276.     Doctrine  of  Assumption  of  Risk 

This  rule  of  law  still  holds  in  many  states  where  there  is 
no  workmen's  compensation  act,  or  where  the  workmen's 
compensation  act  does  not  cover  all  kinds  of  employment. 

The  doctrine  holds  that  if  there  are  dangers  in  the  busi- 
ness which  are  sufficiently  obvious  for  the  employee  to  notice 
and  recognize,  he  assumes  the  risk  of  accidents  which  may 
arise  from  them,  and  the  employer  is  not  liable  for  his  injuries. 
The  same  would  be  true  if  the  workman  afterwards  discovered 
dangers  and  remained  in  the  employment  without  the  em- 
ployer's promising  to  remedy  them. 

If  the  employer  assures  an  employee  that  his  work  in- 
volves no  danger,  the  latter  cannot  be  held  to  have  assumed 
the  risk.  For  instance,  in  Wurtemberger  v.  Metropolitan  St. 
R.  Co.,  a  foreman  laughed  at  a  workman  when  he  told  him 
that  a  jack  was  unsafe,  and  said  to  the  rest,  "Here  is  a  green- 
horn, and  he  thinks  that  jack  is  unsafe."  ^  Wurtemberger  was 
held  to  have  a  right  to  damages  for  the  injury  subsequently 
received.     (See  also  §§  279,  280.) 

*  68  Kansas  642. 


Ii 
I 


t> 


'm 


326 


EMPLOYMENT 


employer's  responsibility 


327 


§  377.    Doctrine  of  Contributory  Negligence 

This  rule  holds  that  if  the  carelessness  of  the  injured  em- 
ployee in  any  way  contributed  to  the  accident  which  caused 
the  injury,  the  employer  will  not  be  held  responsible. 

It  makes  no  difference  that  the  carelessness  of  the  employee 
was  unintentional  or  the  result  of  a  mistake.  For  instance, 
in  one  case,  an  employee  thought  he  was  walking  on  a  side 
track  instead  of  the  main  track  and  continued  walking  along 
it  until  a  train  struck  him.*  He  was  not  permitted  to  recover 
damages. 

In  another  case,  a  brakeman  named  Quirouet  left  the 
brakes  set  on  a  freight  car.  Then,  instead  of  waiting  for  the 
caboose  which  had  steps  on  it,  he  tried  to  climb  up  and 
turn  off  the  brakes  so  as  to  prevent  the  wheels  from  bursting 
and  wrecking  the  train.  He  was  injured  while  attempting  to 
climb  up  in  this  way,  and  was  not  permitted  to  recover 
damages.' 

Some  states  now  have  a  doctrine  of  comparative  neg- 
ligence. Sometimes  the  accident  was  primarily  due  to  the 
carelessness  of  the  employer  or  to  his  neglect  to  perform  the 
duties  which  he  owed  to  the  employee,  but  the  employee's  own 
carelessness  had  something  to  do  with  it.  In  this  case  the 
jury  must  determine  what  damages  are  due  the  employee  for 
the  injury,  and  then  decide  what  relation  his  carelessness  bore 
to  the  employer's  carelessness  or  neglect  of  duty,  and  award 
him  a  proportionate  amount  of  the  damages.  (See  also 
§§  279,  280.) 

§  278.    The  FcUow-Scrvant  Rule 

The  fellow-servant  rule  means  that  the  employee  cannot 
hold  his  employer  for  damages  if  the  injury  was  due  to  the 
act  of  a  fdlow-servant  or  a  fellow  employee.    This  rule,  with 


"Vreeland  ▼.  Chicago,  etc.,  R.  Co..  92  Iowa  279:  60  N.  W.  ka2. 
*  Quirouet  ▼.  Ala.  Great  Southern  R.  Co.,  in  Ga.  315;  36  S.  E. 


S99. 


the  doctrines  of  assumption  of  risk  and  contributory  negli- 
gence, is  rapidly  being  done  away  with. 

In  some  states  the  harshness  of  the  old  law  has  been  miti- 
gated by  the  so-called  superior  servant  rule.  That  is,  if 
the  fellow-employee  was  a  superintendent  or  someone  in  a 
position  of  authority,  he  is  not  regarded  as  a  fellow-servant 
and  the  employer  is  responsible  for  his  carelessness.  In  some 
states,  only  an  employee  who  has  the  power  to  hire  and  dis- 
charge is  regarded  as  being  a  superior  servant ;  while  in  others, 
any  position  of  authority  which  gives  him  the  power  to  con- 
trol the  actions  of  the  men  is  sufficient  to  insure  his  status 
under  the  superior  servant  rule.     (See  also  §§  279,  280.) 

§  279.    Employers*  Liability  Acts 

Employers'  liability  acts  have  been  passed  to  define  and 
increase  the  liability  of  the  employer  for  injuries.  Most  of 
them  do  away  with,  or  at  least  modify,  some  of  the  old  rules 
excusing  the  employer  from  liability.  The  doctrine  of  the 
assumption  of  risk  has  generally  been  greatly  modified,  and 
the  duties  of  the  employer  to  guard  against  accident  have 
been  increased.  In  New  York,  for  instance,  the  employee 
assumes  only  such  risks  as  may  still  remain  after  the  employer 
has  taken  care  to  discover  and  remedy  all  defects,  and  has 
complied  with  all  laws  requiring  safety  devices. 

It  is  under  these  acts  that  the  doctrine  of  comparative 
negligence  has  been  introduced. 

Differences  in  Liability  Acts.  In  order  to  know  just  what 
the  effect  on  the  old  rules  is,  it  is  necessary  to  consult  the 
particular  liability  act  of  each  state,  as  the  acts  differ  some- 
what. Some  of  the  acts  apply  only  to  special  classes  of  work- 
men, such  as  miners;  while  others  exclude  certain  classes, 
such  as  farm  laborers.  For  information  in  regard  to  this 
also,  it  will  be  necessary  to  consult  the  particular  act  in 
question. 


328 


EMPLOYMENT 


employer's  responsibility 


329 


As  a  usual  rule,  these  acts  provide  that  the  employees  of 
a  subcontractor  are  to  be  considered  as  the  employees  of  the 
contractor  also,  for  the  purpose  of  claiming  compfensation  for 
injuries  under  the  act.     (See  §§  259,  260.) 

Notice  of  Accident— Time  Limits.  In  order  to  obtain  the 
benefits  of  bringing  suit  under  the  act,  the  employee  must 
give  his  employer  a  notice— usually  it  must  be  written— of 
the  time,  place,  and  cause  of  the  accident  The  employee  may 
either  serve  the  notice  personally  or  send  it  by  mail  to  the 
employer's  last  known  address.  This  notice  must  be  given 
within  a  certain  limited  time  after  the  happening  of  the  acci- 
dent. The  time  varies  in  the  different  acts,  and  there  is 
generally  some  provision  allowing  the  employed  a  certain  ex- 
tension of  time  in  case  of  mental  or  physical  incapacity,  so 
that  he  may  send  the  notice  after  the  incapacity  has  been 
removed.  The  action  must  be  brought  within  a  certain  time 
from  the  happening  of  the  accident,  generally  varying  from 
one  to  two  years. 

Death  of  Employee-^ ame  of  Action.  In  case  of  the 
employee's  death  from  his  injuries,  these  laws  give  a  cause 
of  action  to  his  personal  representative,  i.e.,  executor  or  ad- 
ministrator, or  to  his  surviving  relatives,  to  recover  damages 
for  the  injury  these  relatives  have  suffered  by  his  death.  In 
such  a  case,  the  executor  or  administrator  is  allowed  a  certain 
period  of  time  after  his  appointment  in  which  to  give  to  the 
employer  the  notice  mentioned  above. 

_____  • 

This  right  of  action  in  case  of  death  is  distinct  from  the 
right  of  the  employee  to  sue  for  injuries.  The  employee  may 
recover  damages  for  his  injuries ;  his  representatives  may  re- 
cover only  damages  caused  to  them  by  his  death.  But,  as  a 
sort  of  additional  penalty  to  the  employer,  the  state  of  Massa- 
chusetts allows  the  surviving  relatives  to  recover  damages 
for  conscious  suffering  enduring  by  the  employee  before  his 
Qeatii. 


In  order  to  take  advantage  of  these  acts,  the  rules  as  to 
the  notice  and  the  time  within  which  the  action  may  be  brought 
must  be  strictly  observed.  If,  through  failure  to  comply  with 
them,  the  new  right  of  action  under  the  act  is  lost,  the  em- 
ployee still  has  his  old  action  at  common  law  for  the  injury 
which  he  has  suffered,  provided  that  it  has  not  become  out- 
lawed also  by  lapse  of  time;  the  employee  would,  of  course, 
stand  a  much  better  chance  of  recovering  if  he  sued  under 
the  act.  His  relatives  in  case  of  his  death  have  only  the  action 
given  them  by  the  statute.  If  they  fail  to  take  advantage  of 
this  action,  their  remedy  is  gone. 

Some  of  these  acts  have  been  superseded  by  the  workmen's 
compensation  act  discussed  in  the  next  section.  In  other  states, 
as  in  New  York,  the  workmen's  compensation  act  applies  only 
to  certain  employments,  leaving  the  rest  to  come  under  the 
employers'  liability  act. 

The  Federal  Employers'  Liability  Act.  This  act  applies  to 
all  the  railroads  engaged  in  the  business  of  interstate  com- 
merce throughout  the  country.  It  also  applies  to  all  railroads 
in  the  possession  of  the  United  States,  such  as  those  of  the 
Philippines  and  Porto  Rico,  and  in  the  District  of  Columbia. 
Where  the  railroads  are  engaged  in  both  interstate  and  intra- 
state commerce  (that  is,  both  commerce  which  crosses  the 
state  lines  and  that  which  is  carried  on  wholly  within  the 
state),  in  order  to  take  advantage  of  the  law's  provisions 
the  employee  must,  of  course,  himself  have  been  assisting 
in  the  business  of  interstate  commerce  at  the  time  the  accident 

occurred. 

However,  a  railroad  company  in  contributing  to  an  em- 
ployees' accident  fund  may  lawfully  make  the  condition  that 
if  the  employee  accepts  any  benefit  under  the  fund,  he  thereby 
gives  up  his  right  to  bring  suit.  He  does  not  make  his  choice 
as  to  whether  he  will  accept  the  benefit  or  will  bring  suit,  until 
after  the  injury  has  taken  place. 


ii 


1 


330 


EMPLOYMENT 


Notes: 
I.  In  attempting  to  claim  damages  under  any  em- 
ployers' liability  act.  if  it  is  proposed  to  bring  an 
acUon.  consult  a  reputable  lawyer,  who  will  be 
able  to  attend  to  aU  the  necessary  formalities  and 
to  secure  for  the  injured  employee  his  proper 
rights  whether  by  suit  or  by  compromise  of  the 
claim. 

2.  If  you  intend  to  sue,  do  not  accept  any  benefits 
from  msurance  funds  connected  with  the  com- 
pany without  first  consulting  a  lawyer. 

§  280.    Workmen's  Compensation  Acts 

With  all  the  protections  and  safeguards  that  can  be  devised 
by  saence  and  required  by  law  to  protect  the  employee,  there 
will  always  be  certain  occupations  which  in  their  verv  nature 
are  dangerous  to  life  and  limb.  Such  are  mining,  building 
railroading,  working  in  atmospheres  clouded  by  fine  dust  or 
gas  fumes,  etc.  In  the  past,  the  loss  of  life  and  health  in  these 
industnes  reached  alarming  proportions.  It  has  been  reduced 
somewhat  by  the  modem  tendency  to  require  safeguards,  but 
the  fact  remains  that  these  industries  are  all  the  time  "scran 
pmg"  humanity.  ^ 

Since  employees  injured  in  these  occupations  seldom  earn 
wages  large  enough  to  permit  them  to  provide  for  the  future 
the  burden  of  taking  care  of  them  and  of  their  dependents 
has  fallen  m  a  large  measure  on  the  community.  It  seemed 
more  just  to  make  the  industries  which  caused  the  injuries 
pay  the  expenses  than  to  let  the  burden  faU  on  the  employee 
or  on  the  community  as  a  whole. 

In  consequence,  both  here  and  abroad  there  has  grown 
up  m  recent  years  a  system  known  as  workmen's  compensa- 
lion* 


employer's  responsibility 


331 


It  is  part  of  good  bookkeeping  to  carry  a  depreciation 
account  to  cover  the  wear  and  tear  on  mechanical  machinery 
in  a  manufacturing  business  as  a  part  of  the  cost  of  the 
product.  The  time  has  come  when  provision  must  be  made 
for  the  wear  and  tear  on  the  human  machinery  engaged  in 
the  industry  which  is  quite  as  much  a  part  of  the  cost  of 
production  as  is  the  wear  and  tear  on  the  plant.  We  are 
accordingly  getting  Workmen's  Compensation  Laws  to  pro- 
tect the  laborer  to  a  slight  extent  against  accident  and  to 
provide  for  his  family  in  case  of  death  in  the  course  of  his 
employment.* 

The  essential  feature  of  this  system  is  that  there  is  estab- 
lished a  scale  of  compensation  for  different  kinds  of  injuries, 
by  which  payments  are  usually  made  at  regular  intervals  ex- 
tending over  some  period  of  time.  The  payment  must  be 
made,  as  a  general  rule,  regardless  of  who  was  to  blame  for 
the  accident,  except  where  the  employee  wilfully  and  inten- 
tionally brought  the  injury  on  himself,  or  where  it  came  about 
as  the  direct  result  of  his  intoxication. 

§281.     Modern  Statutory  Law 

In  New  York  State,  the  compensation  law'  enumerates 
some  forty  groups  of  hazardous  employments.  The  scope  of 
the  law  is  widened  by  including,  as  the  last  group: 

All  other  employments  not  hereinbefore  enumerated  car- 
ried on  by  any  person,  firm  or  corporation  in  which  there 
are  engaged  or  employed  four  or  more  workmen  or  opera- 
tives regularly,  in  the  same  business  or  in  or  about  the 
same  establishment,  either  upon  the  premises  or  at  the  plant 
or  away  from  the  plant  of  the  employer,  under  any  contract 
of  hire,  express  or  implied,  oral  or  written,  except  farm 
laborers  and  domestic  servants. 

In  addition,  it  is  provided  that  any  employer  not  coming 
under  the  provisions  of  the  law,  or  having  some  employees 
who  do  not,  may  choose  to  accept  the  law  of  his  own  accord. 

*  Samuel   Untermeycr. 

•As  in  effect  July  i,  i9>9. 


*i| 


f 


332 


EMPLOYMENT 


In  other  states,  it  applies  to  all  occupations,  or  to  all  occu- 
pations with  a  few  exceptions,  such  as  farming  or  domestic 
service.  In  New  Jersey  the  act  applies  to  aU  classes  of  em- 
ployees,  including  farm  hands  and  domestic  servants. 

The  injury  must  be  one  arising  out  of  the  employment. 
For  instance,  in  a  New  Jersey  case  a  workman  named  Hully 
slipped  on  a  concrete  floor  while  dodging  away  from  a  fellow- 
workman  who  was  trying  to  knock  his  hat  off.  This  was  hdd 
not  to  come  under  the  compensation  act. 

If  the  employee  is  injured  on  his  way  to  or  from  work, 
while  on  his  employer's  premises,  it  is  considered  injury  iii 
the  course  of  his  employment  and  entitles  him  to  compensation. 
An  injury  received  while  he  was  disobeying  orders  would 
not  entitle  him  to  compensation.  A  man  named  Reimers  who 
had  been  forbidden  by  his  employer  to  make  use  of  an  auto- 
mobile, took  it  out  and  was  injured  in  consequence.  He  was 
not  allowed  compensation.* 

An  injury  caused  by  a  third  person  to  an  employee  in  the 
regular  course  of  his  work  entitles  him  to  compensation  from 
his  employer  as  does  any  other  injury  in  the  course  of  the 
employment.  For  instance,  in  one  case  a  superintendent  was 
shot  by  a  man  who  had  been  annoying  a  woman  employee  and 
whom  he  had  ordered  off  the  premises.  The  superintendent 
was  entitled  to  compensation. 

§282.    Schedules  of  Compensation 

Each  act  contains  its  own  schedule  of  compensation.  Most 
of  them  follow  the  same  general  scheme.  The  following  is 
the  New  York  schedule  of  compensation  for  injuries  : 

1.  Permanent  total  disability  shall  entitle  the  employee 

to  receive  two-thirds  of  his  weekly  wage,  while  he 
lives. 

2.  Temporary  total  disability  shall  entitle  the  employee 

•  Reimen  ▼.  Proctor  Pub.  Co.,  85  N.  J.  L.  441. 


EMPLOYER'S  RESPONSIBILITY 


333 


to  receive  two-thirds  of  his  weekly  wage  to  an 

amount  not  exceeding  $3,500. 
3.     Permanent  partial  disability  entitles  the  employee  to 

receive  two-thirds  of  his  weekly  wage  for  varying 

periods  ranging  from  60  weeks  for  loss  of  thumb 

to  312  weeks  for  loss  of  an  arm. 
In  the  case  of  death,  compensation  to  the  employee's  de- 
pendent relatives  is  provided  according  to  a  fixed  schedule. 
In  New  Jersey  the  scale  runs  as  follows:  For  one  dependent 
35  per  cent  of  wages  earned  until  remarriage  of  widow  or 
attainment  of  age  of  18  by  child.  From  this  it  increases  by 
a  sliding  scale  to  a  payment  of  60  per  cent  of  wages  earned 
in  case  of  six  dependents.  In  any  case,  payments  are  not  to 
exceed  300  weeks. 

In  New  York  the  death  compensation  ranges  from  30  to 
661  per  cent  of  wages  as  a  maximum,  and  weekly  pay- 
ments are  to  continue  until  dependency  ceases.  In  other  states 
there  are  other  variations,  but  enough  has  been  cited  to  give 
a  general  idea  of  the  liberality  of  these  laws. 

§  283.    Who  Are  Entitled  to  Compensation 

It  is  generally  held  that  in  order  to  be  an  employee  entitled 
to  compensation  the  man  must  be  regularly  employed,  and 
must  be  subject  to  the  employer's  orders  as  to  how  the  work 
shall  be  done.  Independent  contractors  and  subcontractors 
are  not  employees.  But  the  employees  of  subcontractors  may 
recover  compensation  from  the  main  contractor  as  though  they 
were  his  employees.    (See  §§  259,  260.) 

Where  Uiere  is  a  dispute  between  the  employer  and  the 
employee  over  the  amount  of  compensation  which  is  due  under 
the  act,  most  of  these  acts  provide  for  arbitration.  Some  of 
the  acts  provide  that  at  any  time  an  employer  may  agree  with 
his  employees  to  appoint  a  standing  arbitration  committee 
which  shall  decide  all  disputes  that  may  arise  in  the  future. 


I 


wv'W 


EMPLOYMENT 


The  law  usually  requires  the  employer  to  report  all  acci- 
dents to  the  Compensation  G)mmission  within  a  certain  time 
after  their  occurrence,  on  penalty  of  paying  a  severe  fine  if  he 
fails  to  comply. 

Where  one  injury  results  from  another,  the  first  one  being 
the  result  of  the  accident,  the  compensation  must  cover  both. 
For  instance,  an  employee  was  paralyzed  in  an  accident  and 
died  of  blood-poisoning  from  a  bed-sore  which  came  because 
he  had  to  lie  in  one  position  all  the  time.  His  relatives  were 
allowed  compensation  for  his  death/ 

If  the  employee  was  not  strong  physically,  a  fact  which 
rendered  him  more  prone  to  accident,  it  would  make  no  dif- 
ference in  his  right  to  compensation  for  the  injury.  In  a 
Massachusetts  case,  a  delicate  woman  named  Honora  Madden, 
who  was  employed  as  a  carpet  sewer,  brought  on  angina  pec- 
toris by  pulling  heavy  carpets  across  the  table  in  the  course  of 
her  work.  It  was  admitted  that  if  she  had  been  stronger  the 
exertion  would  not  have  hurt  her.  She  was  allowed  full  com- 
pensation.' 

§  284.    Employer's  Defenses  Taken  Away  by  the  New  Act 

This  scheme  of  compensation  is  not  made  compulsory,  but 
the  same  effect  is  accomplished  by  taking  away  all  of  the 
defenses,  i.e,  assumption  of  risk  (§  276),  contributory  neg- 
ligence (§  277),  and  the  fellow-servant  rule  (§278),  which 
the  employer  had  at  common  law.  The  result  is  that  the  em- 
ployer's chances  of  escaping  the  payment  of  heavy  damages 
in  a  suit  at  law  are  so  slight  that  most  employers  prefer  to 
take  advantage  of  the  act. 

The  employer  comes  into  the  scheme  by  taking  out  in- 
surance, or  giving  security  for  the  payment  of  claims  required 
by  the  act.    After  he  has  done  this,  it  is  assumed  that  each 

'Burn's  Case.  218  Mass.  8. 
*Madden's  Case,  2a  Mass.  487 


employer's  responsibility 


335 


of  his  employees  has  also  consented  to  come  under  the  scheme 
unless  the  employee  at  the  time  he  enters  the  employment 
files  notice  to  the  contrary  with  the  employer.  In  New  Jersey, 
every  agreement  of  employment  is  deemed  to  have  been  made 
under  the  act,  unless  at  the  time  of  making  the  contract  one 
of  the  parties  notifies  the  other  in  writing  that  he  refuses  to 
accept  the  agreement  under  the  terms  of  the  act. 

Employees  Cannot  Give  Up  Right,  The  acts  also  provide 
that  the  employee  cannot  make  an  agreement  giving  up  his 
right  to  compensation.  If  he  makes  one,  it  will  have  no  bind- 
ing effect  on  him,  and  he  may  claim  the  compensation  just 
the  same. 

Notes: 

I.  Every  employer  of  labor  should  inform  himself  as 
to  his  responsibility  under  the  laws  of  his  state. 

2«  It  is  cheaper  for  the  employer  to  enter  the  compen- 
sation scheme  than  to  take  the  alternative.  Where 
the  acts  allow  it,  most  employers  will  find  it 
cheaper  to  insure  with  the  State  Fund  or  some 
good  insurance  company  than  to  risk  paying  for 
injuries. 

3.  An  employer  should  select  reputable  physicians  and 
notify  his  employees  to  go  to  them,  when  the  act 
makes  him  responsible  for  medical  attendance. 
This  will  protect  both  himself  and  his  employees 
against  overcharge  or  malpractice. 

§  285.    Third  Persons 

Except  under  the  workmen's  compensation  acts,  the  em- 
ployer is  not  responsible  to  his  employees  for  the  acts  of  third 
persons  over  whom  he  had  no  control.  If  a  train  robber  were 
to  hold  up  a  train  and  shoot  the  engineer,  the  railroad  com- 
pany would  not  be  responsible  for  the  affair  to  either  em- 
ployees who  were  hurt  or  passengers  who  were  robbed. 


336 


EMPLOYMENT 


The  employer  is,  on  the  other  hand,  responsible  to  third 
persons  for  any  injuries  caused  to  them  by  his  employees  in 
performing  their  duties.  If  the  injury  is  the  result  of  some 
act  of  the  employee  which  has  no  connection  with  his  duties 
as  an  employee,  the  employer  is  not  liable.  If,  for  example, 
the  employee  should  injure  the  third  person  in  a  fight  over 
some  personal  quarrel,  or  in  playing  a  practical  joke,  the  em- 
ployer could  not  be  held  to  have  had  any  connection  with  the 
matter.    (See  §  136.) 

Where  an  employer  is  liable  to  a  third  person  for  injuries 
caused  by  his  employees,  if  the  third  person  was  careless  in 
any  way  that  contributed  to  the  accident,  he  would  be  pre- 
vented from  recovering  damages  from  the  employer.  The 
contributory  negligence  rule  (§  277)  still  stands  in  all  cases 
so  far  as  third  persons  are  concerned. 


Review  Questions 


1. 


What  three  common  law  rules  relieved  the  employee  of  respon- 
sibility for  accidents?    Explain  the  working  of  each. 

2.  What  two  classes  of  modem  law  modify  the  injustice  of  the 

common  law  rules  as  to  accidents  to  workers?    What  is  the 
theory  of  these  modern  laws? 

3.  What  are  the  special  features  of  the  workmen's  compensation 

act  of  your  own  state? 

4.  What  are  the  special  features  of  the  employers'  liability  act  of 

your  own  state? 

5.  Who  are  employees  ?    Who  are  entitled  to  damages  or  compensa- 

tion for  an  injury?     What  must  the  injured  workman  prove 
to  secure  damages  for  a  personal  injury  in  your  state? 
What  should  a  workman,  injured  while  employed  by  one  not 
insured  under  workmen's  compensation  act,  do  in  your  state? 

7.  When  is  an  employer  responsible  to  third  persons  for  injuries 

caused  by  his  employees? 

8.  If  a  woman  offers  her  neighbor's  cook  higher  wages  so  that  she 

leaves,  is  she  liable  to  her  neighbor  in  damages? 


6. 


PART  VIII 
PARTNERSHIP 


..( 


CHAPTER  XLIII 


INTRODUCTORY 


§  286.    Definition 

Partnership  is  the  result  of  a  contract  between  two  or 
more  competent  parties  to  combine  their  money,  property, 
skill,  or  labor  for  the  transaction  of  some  lawful  business  for 
profit. 

Essential  Elements,  Mere  representation  that  parties  are 
partners,  or  their  passive  acquiescence  in  such  representations 
by  others,  will,  as  to  third  parties,  be  sufficient  to  establish 
partnership  liabilities.  To  form  a  partnership  as  between  the 
parties  themselves  is  less  simple  and  requires  the  following 
essential  elements: 


I. 
2. 

3. 

5. 
6. 


An  agreement 

Parties  competent  to  contract 
Partnership  capital  or  property 
A  community  of  control 
A  lawful  business 
Profit-sharing  as  a  motive 

Unless  expressly  stipulated  otherwise,  as  in  the  case  of 
dormant  and  special  partners,  each  member  of  a  partnership 
has  an  equal  right  to  assist  in  the  management  of  the  partner- 
ship business  and  property,  and  has  equal  power  to  contract 
regarding  it.  This  right  may  be  restricted  by  agreement 
among  the  partners. 

The  business  or  undertaking  must  be  lawful,  and  the 
association  must  have  been  formed  for  the  purpose  of  sharing 
profits.  An  association  that  does  not  share  profits  is  not  a 
partnership. 


339 


340 


PARTNERSHIP 


I 


DisHncHve  Features.  The  partnership  relation  is  char- 
acterized by  certain  distinctive  features. 

1.  Each  partner  is  an  agent  for  the  others  in  the  trans- 

action of  any  business  within  the  scope  of  the  part- 
nership purposes. 

2.  Each  partner  shares,  either  equally  or  in  an  agreed 

proportion,  in  the  net  profits  of  the  business  and 
usually  in  the  losses  also. 

3.  In  case  of  insolvency  each  partner  is  personally  liable 

for  all  of  the  firm's  obligations. 

4.  The  property,  the  business,  firm  name,  good-will,  and 

any  trade-marks  or  other  intangible  possessions  are 
firm  property  and  form  part  of  the  common  fund. 

5.  A  partner  is  entitled  to  good  faith  and  fair  dealing 

from  his  associates,  and  on  dissolution  of  the  part- 
nership may  have  an  accounting  to  ascertain  his 
interests  in  the  business. 

6.  The  partnership  relation  is  a  purely  personal  one  and 

the  partnership  is  terminated  if  any  one  of  the 
partners  dies,  retires,  or  sells  his  interest  in  the  firm. 

7.  Unlike  a  corporation,  the  partnership  has  no  entity 

distinct  from  its  membership.  It  cannot  sue  nor  be 
sued  in  the  firm  name.  It  cannot  contract  with  nor 
bring  suit  against  its  members,  nor  can  they  bring 
suit  against  it. 

§287.    Partnerships    Distinguished    from    Non-Partnership 
Organizations 

0>-ownership  in  either  land  or  personal  property  does  not 
involve  any  partnership  between  the  owners. 

Associations  not  formed  for  profit  are  not  partnerships.  The 
many  unincorporated  clubs,  churches,  societies,  associations, 
and  fraternal  organizations  are  not  partnerships  and  do  not 


INTRODUCTORY 


341 


involve  mutual  agency  nor  partnership  liability.  Co-operative 
societies  which  buy  goods  and  distribute  them  among  their 
members  are  not  partnerships  unless  formed  for  the  purpose 
of  making  a  profit.  In  some  states  business  organizations 
designated  as  partnership  associations  are  authorized  by  law. 
These  are  neither  partnerships  nor  corporations,  though  they 
partake  of  the  characteristics  of  both.     (See  §  293.) 

Contracts  That  Are  Not  Partnership  Contracts.  Contracts 
are  frequently  made  for  a  share  of  profits  as  compensation 
for  services,  for  the  iiqp  of  prnp^rfy,  or  for  the  loan  of  money. 
In  the  first  two  cases,  if  the  agreement  was  made  in  good  faith 
and  not  to  evade  the  law,  the  contract  will  not  be  held  to  create 
a  partnership.  Where  money  is  loaned,  and  an  agreement  is 
made  in  good  faith  to  give  the  lender  a  share  in  the  profits;  a<; 
compensation  tor  its  use,  and  he  does  not  participate  in  the 
management  ot  the  business  or  hol<i  himgplf  r>iif  oc  o  partner^ 
tne  contract  will  not  in  most  states  be  considered  one  of  part- 
nership. It  is  sater  10  nave  tne  agreement  expressed  in  writ- 
111^,  as  under  the  old  rule  of  law  the  parties  became  partners 
under  such  an  arrangement,  and  in  some  states  it  is  necessary 
to  have  a  written  agreement  to  prevent  this  eflPect. 

A  contract  of  the  above  natnrP  ^hoiiM  prnvidp  for  iht^  re- 
turn of  the  money  loaned  without  reference  to  profits.    VVher^ 
such  a  contract  concerns  the  use  ot  property.  TIT?  title  to  the 
property  should  be  carefully  reserved  to  the  owner.     In  all 

Casei:;  where  profits  nre  rr^l^Pn   withniif  parfn^rt^^jp  intent  Tt  i<;    ^ 

prudent  to  specify  in  the  contract  that  the  party  shall  rerejyp 
as  compensation  *'an  amount  equal  to''  the  propoc/^ri  cV.nt...  ^f^ 
profits. 

If  in  any  of  the  cases  of  profit-sharing  discussed,  the  agree- 
ment is  made  for  a  share  of  the  "gross  returns,*'  this  wordini 
shows  conclusively  that  ^he  arrang-pm^t^^  U  n^^  a  partnership. 
The  usual  arrangement  for  renting  land  for  a  share  of  the 
crops  raised  is  an  example  of  this   form  of  contract,   and 


I . 


342 


PARTNERSHIP 


neither  as  between  the  parties  themselves  nor  as  to  third  per- 
sons would  the  relation  be  one  of  partnership. 

Liability  ta  Third  Parties.  In  dealing  with  this  question 
it  is  to  be  emphasized  that  as  to  third  parties  it  is  the  apparent 
intention  of  the  parties  rather  than  their  expressed  or  declared 
intention  which  controls.  If  the  acts  of  the  persons  under  con- 
sideration are  such  as  to  mislead  third  persons  into  believing 
them  partners,  they  will  have  to  assume  the  liabilities  of  part- 
ners to  such  third  parties.  As  between  the  parties  to  the 
agreement,  however,  the  true  rule  is  that  "the  agreement  and 
intention  of  the  parties  themselves  should  govern  in  all  cases." 
(See  §§  295,  299.) 

Notes: 

I.  A  contract  for  a  share  in  the  profits  not  intended  to 
create  a  partnership  should  always  be  ifl  vviiliifg 
and  provide  either  for  "an  amount  equal  to"  the 
agreed  share  of  the  profits,  or  for  a  share  of  the 
".tfiV&^  ^^lUUIh."  rthll  »ii/l  fnr  "a  sharp  in  rhp. 
profits." 

with  whom  tht^  profits  are  to  he  f;hared  is  not  tabe 
ajiartner,  and  is  to  have  no  control  of  the  business 
Dor  liability  for  its  debty 


2. 


Review  Questions 

What  is  a  partnership?    What  are  the  essential  elements? 
What  may  cause  a  person  to  be  held  liable  as  a  partner  by  third 

parties? 
How  is  a  partner  an  agent? 
Must  each  partner  have  an  interest  in  both  profits  and  losses? 

5.  What  is  meant  by  partnership  liability? 

6.  Distinguish  between  the  legal  character  of  a  partnership  and  a 

corporation. 


I. 
2. 

3- 
4 


INTRODUCTORY 


343 


la 

II. 
12. 

13. 


7.  Distinguish  between  partners  in  general  business  and  partners 

in  common  of  a  tract  of  land. 

8.  How  may  clubs,  associations  and  the  like  be  distinguished  from 

partnerships  ? 

9.  Can  a  person  have  a  share  of  profits  as  compensation  for  services 
or  use  of  property  without  becoming  liable  as  a  partner? 

Why  does  a  different  legal  effect  attach  to  a  share  of  "gross 
returns"  and  a  share  of  "net  profits"? 

What  determines  the  liability  to  third  parties? 

If  a  man  is  interested  in  the  profits  of  a  business,  is  he  neces- 
sarily a  partner  therein?    Explain  answer. 

A  and  B  were  partners.  C  was  a  salesman  for  the  firm,  and 
for  his  services  he  was  paid  one-tenth  of  the  net  profits  of 
the  firm.  The  firm  owed  D  $1,000  on  an  open  account,  and 
D  sued  A,  B,  and  C  as  partners.  Is  C  liable  as  a  partner 
or  not?    Why? 

14.  The  president  of  a  non-incorporated  club  buys  some  furniture 

for  the  club.  Will  the  members  be  liable  for  the  cost  of  the 
furniture?     Why?     Will  any  of  the  members  be  liable? 

15.  A  v/as  a  horse-trainer  and  B  the  owner  of  a  race-horse.    They 

made  an  agreement  whereby  A  was  to  keep,  train,  and  ccntroi 
the  horse,  and  both  A  and  B  were  to  divide  the  expenses  and 
the  winnings.     Was  this  a  partnership  arrangement? 

16.  A  makes  a  loan  to  the  firm  of  X,  Y  &  Co.,  who  agree  to  pay 

him  a  certain  percentage  of  the  profits.  Does  this  arrange- 
ment constitute  A  a  partner  of  the  firm? 

17.  A  and  B  make  an  agreement  whereby  A  agrees  to  run   B's 

factory  and  B  agrees  to  pay  A  a  certain  percentage  of  the 
profits.    Is  this  a  partnership  arrangement? 

18.  B  and  L  make  an  agreement  whereby  B  furnishes  a  farm,  team, 

and  some  labor,  and  L  furnishes  the  greater  part  of  the  labor 
and  agrees  to  manage  the  farm.  The  profits  are  to  be  divided 
as  follows:  two-thirds  to  B  and  one-third  to  L.  Is  this  a 
partnership  agreement? 


1 


CHAPTER  XLIV 

THE  CONTRACT  OF  PARTNERSHIP^ 

§  a88.    Parties 

As  partnership  is  strictly  a  contract  relation,  it  is  essential 
that  the  parties  to  it  be  competent  to  contract.     (See  under 

§  38.) 

H  a  minor  becomes  a  partner,  his  acts  will  bind  the  firm, 

since  a  minor  may  act  as  agent.  Should  the  firm  become  in- 
solvent, however,  the  minor  may  take  advantage  o£  his  in- 
fancy, refuse  the  partnership  liability,  and  leave  his  associates 
to  bear  the  entire  burden  of  the  partnership  obligations,  in- 
cluding those  which  he  himself  created,  but  he  cannot  with- 
draw any  capital  he  may  have  invested  in  the  firm. 

A  partnership  may  be  entered  into  between  two  firms  al- 
ready existing,  or  between  a  firm  and  an  individual,  as  readily 
as  may  any  other  contract.  Under  such  an  arrangement  the 
profits,  and  in  case  of  dissolution  the  assets,  are  divided  among 
the  component  firms  or  parties,  and  then  subdivided  by  the 
firms  among  their  individual  members.  The  individual  mem- 
bers of  both  firms  are  personally  liable  to  third  parties. 

A  corporation  cannot  become  a  partner  unless  expressly 
authorized  to  do  so  by  its  charter.  It  may,  however,  make 
itself  liable  to  third  persons  as  a  partner  if  it  attempts  to  enter 
into  partnership  relations. 

Note: 

I.     Any  person  who  is  capable  of  contracting  may  be- 
come a  partner.    Corporations,  before  they  may 


» For  formt  of  partnership  contract,  see  Chapter  CV,  Forms  50,  52. 

344 


THE  CONTRACT  OF  PARTNERSHIP 


345 


become  partners,  must  be  expressly  authorized  by 
their  charters  to  do  so. 

§  289.    Kinds  of  Partners 

Partners  are  of  various  kinds.  There  may  be  general, 
limited,  dormant,  and  nominal  partners. 

General  Partners,  A  general  or  active  partner  is  one  who 
takes  part  in  the  management  of  the  business,  and  who  is 
liable  for  the  firm's  obligations  without  limitation  as  to 
amount.  An  active  partner  who  wishes  to  withdraw  from  the 
firm  and  cut  off  subsequent  liability,  must  give  notice  to  all 
those  with  whom  the  firm  is  doing  business. 

Limited  Partners.  A  limited  or  special  partner  is  one  who 
does  not  participate  to  the  full  in  partnership  liability.  As 
the  price  of  his  limited  liability,  such  a  partner  must  refrain 
from  taking  any  part  in  the  management.  Limited  partner- 
ships are  formed  only  where  authorized  by  special  statutes. 

(See  §  293) 

Dormant  Partners,  A  dormant  or  sleeping  partner  is  one 
who  has  invested  as  a  partner  but  whose  connection  with  the 
firm  is  secret  and  who  has  no  part  in  the  management  of  the 
business.  A  dormant  partner  has  no  exemptions  or  privileges 
beyond  those  of  a  general  partner,  except  as  a  result  of  the 
secrecy.  If  this  connection  with  the  firm  is  discovered  he  is 
liable  in  exactly  the  same  way  and  to  the  same  extent  as  any 
general  or  active  partner.  Unless  prevented  by  the  partner- 
ship agreement,  he  may  at  any  time  assert  himself  as  an  active 
partner  and  take  part  in  managing  the  firm  business. 

A  dormant  partner  who  withdraws  without  giving  notice 
cannot  be  held  to  any  subsequent  liability  of  the  firm,  even 
though  his  previous  connection  with  it  should  become  known. 
His  withdrawal,  however,  does  not  free  him  from  liability  for 
anything  done  by  the  firm  during  his  connection  with  it. 

Silent  Partners.    The  term  "silent  partner"  is  often  used 


346 


PARTNERSHIP 


I 
I 


with  much  the  same  meaning  as  "doiroant  partner."  There  is, 
however,  this  difference:  a  dormant  partner  must  be  both 
"secret"  and  "silent,"  while  a  silent  partner  need  not  be  secret. 
A  silent  partner  has  no  voice  in  the  management  of  the  firm 
business,  but  may  be  publicly  known  as  a  partner.  He  is  liable 
for  firm  obligations  just  as  is  any  other  partner,  and  if  he  with- 
draws, he  must  give  notice  to  escape  subsequent  liability. 

Nominal  Partners.  A  nominal  partner  is  one  who,  while 
not  really  a  partner,  in  that  he  has  no  interest  in  the  business 
or  profits,  allows  his  name  to  be  used  or  to  appear  as  that  of  a 
partner.  He  is  held  liable  to  those  who  give  credit  to  the  firm 
on  the  faith  or  with  knowledge  of  his  being  a  member.  He  is 
not,  however,  liable  to  a  creditor  who  had  no  knowledge  of  his 
being  held  out  as  a  partner  when  the  credit  was  given. 

Suhpartners.  A  partner  may  agree  with  an  outside  party 
to  share  his  interest  in  the  profits  and  property  of  the  firm. 
Such  an  arrangement  is  termed  a  subpartnership.  It  may  be 
entered  into  without  the  consent  of  the  firm,  and  without 
affecting  in  any  way  its  existence  or  operations.  The  sub- 
partner  is  not  a  member  of  the  original  firm,  is  not  liable  to 
its  creditors,  and,  under  ordinary  circumstances,  has  no  right 
of  accounting  against  it. 

Notes: 

I.     Limited  partners  should  always  take  care  to  see  that 

the  proper  notices  and  other  regulations  required 

by  the  law  of  their  state  have  been  given  and 

complied  with. 
A  retiring  partner  should  take  care  to  see  that  all 

those  with  whom  the  firm  has  had  dealings  are 

notified  of  his  ceasing  to  be  a  member  of  the  firm. 
A  nominal  partner  is  liable  only  if  he  permitted  his 

name  to  be  used.    One  cannot  be  made  a  nominal 

partner  against  one's  will. 


THE  CONTRACT  OF  PARTNERSHIP 


347 


. 


§290.    Partnership  Contracts 

The  customary  and  the  only  proper  method  of  forming  a 
partnership  is  by  written  articles  of  partnership  signed  by  all 
the  parties.  These  articles  may  be  a  very  simple  memorandum 
of  agreem.ent,  or  they  may  be  expanded  into  elaborate  articles 
of  association,  providing  for  the  numerous  details  and  possible 
exigencies  of  an  extended  commercial  enterprise. 

In  spite  of  the  dangers  of  such  a  course,  partnerships  are 
frequently  formed  by  oral  agreement.  Under  the  Statute  of 
Frauds,  an  oral  contract  of  partnership  to  last  more  than  a 
year  is  not  valid.  If,  however,  immediately  upon  making 
such  a  contract,  the  parties  thereto  enter  upon  its  performance, 
a  partnership  at  will  is  thereby  formed,  which  is  legal  and  is 
governed  as  to  its  terms  by  the  contract,  but  which  may  be 
terminated  at  any  time  by  either  party,  regardless  of  the  terms 
of  the  contract. 

It  must  be  borne  in  mind  that  the  Statute  of  Frauds  does 
not  apply  to  oral  contracts  that  may  be  performed  within  a 
year.  Such  contracts  are  binding  for  the  specified  length  of 
time,  and  cannot  be  dissolved  at  will  without  incurring  a 
liability  for  damages. 

In  many  cases  of  partnership  there  is  neither  a  written  nor 
a  verbal  contract  which  can  be  proved,  but  the  parties  con- 
cerned, either  intentionally  or  unintentionally,  have  acted  as 
partners,  have  had  a  common  fund  in  which  they  exercised  a 
community  of  interest,  and  have  shared  profits  and  losses. 
Under  such  circumstances  they  will  be  held  to  be  partners, 
both  as  between  themselves  and  as  to  third  persons. 

This  same  principle  applies  to  the  case  of  parties  who  as- 
sume to  be  incorporated  when  they  are  not.  It  does  not  apply 
to  those  who  have  attempted  to  incorporate  legally,  but  have 
failed  in  some  point  of  procedure;  they  would  be  held  to  be 
a  de  facto  corporation  and  as  such  capable  of  doing  business. 
Laws  Regulating  Formation  of  Partnerships.    Most  part- 


348 


PARTNERSHIP 


nerships  are  formed  under  common  law  rules  that  are  the  same 
in  every  part  of  the  Union.  In  certain  of  the  western  states, 
however,  codes  of  partnership  law,  intended  to  regulate  gen- 
eral partnerships,  have  been  enacted.  Entirely  apart  from 
these  general  partnership  codes,  nearly  all  the  states  have 
provided  for  the  organization  of  partnerships  with  special  or 
limited  partners.  The  Uniform  Partnership  Act,  prepared  and 
recommended  by  the  National  Conference  of  Commissioners 
on  Uniform  State  Laws,  has  been  adopted  in  Maryland,  Penn- 
sylvania, Wisconsin,  Illinois,  Michigan,  Wyoming  and  Ten- 
nessee. 


Notes: 


I. 


2* 


The  contract  of  partnership  should  always  be  in 
writing. 

The  state  partnership  law  should  always  be  consulted 
in  the  formation  of  any  partnership,  and  especially 
in  the  case  of  a  limited  partnership. 


§  391.    The  Firm  Name 

The  usual  practice  where  there  are  two  partners  is  to  use 
both  names;  the  name  of  the  leading  partner  naturally  coming 
first.  If  there  are  more  than  two  partners,  all  the  names  may 
appear,  though  this  is  luiusual  in  mercantile  partnerships. 
Usually  but  one  or  two  names  appear,  the  other  names  being 
represented  by  the  addition,  "&  Co."  Professional  partner- 
ships on  occasion  use  three  and  even  more  names  in  the  firm 
title. 

In  the  absence  of  statutory  restriction  any  title  that  is 
preferred  may  be  used  as  a  firm  name,  even  though  it  contains 
no  pjirtner's  name,  for  instance,  such  a  name  as  "The  Ansonia 
Furniture  Company."  In  New  York  and  some  other  states  a 
firm  using  any  name  other  than  the  names  of  the  partners  or 
some  of  them,  must  register  such  "trade-name,"  together  with 


THE  CONTRACT  OF  PARTNERSHIP 


349 


the  real  names  of  the  partners,  in  the  county  clerk's  office, 
under  legal  penalty.  It  is  also  illegal  in  New  York  to  use 
the  suffix  "&  Co."  unless  it  represents  existing  or  former 
partners.  Partners  may  change  the  firm  name  without  dis- 
solution or  any  special  formality,  or  may  have  more  than  one 
name  for  the  firm. 

All  business  of  the  firm  should  be  done  under  the  firm 
name,  although  a  partnership  may  exist  and  be  bound  without 
any  specific  firm  name  by  using  the  separate  names  of  the 
partners.  The  firm  signature,  as  "Herrick,  Simpson  &  Co.," 
may  be  written  by  a  partner  or  by  any  agent  of  the  firm.  If 
suit  is  to  be  brought  the  names  of  all  the  partners  must  appear 
in  the  pleadings.  The  usual  form  is  "Anselm  Cole,  Harvey 
Andrews  and  James  Ellis  Jones,  partners  under  the  firm  name 
of  Cole  &  Co." 


§292.    Partnership  a  Personal  Relation 

It  must  be  remembered  that  partnership  is  a  personal  rela- 
tion. Such  skill  and  experience  as  one  partner  may  possess 
above  the  others  constitute  as  legitimate  a  form  of  investment 
as  any  other  kind  of  capital.  In  many  cases  these  are  taken 
as  the  full  equivalent  of  the  financial  investments  of  other 
members  of  the  firm.  In  others,  they  are  regarded  as  a  partial 
equivalent,  and  in  still  others  extra  abilities  are  recognized  by 
a  special  salary  or  a  larger  percentage  of  profits. 

As  partnership  is  a  personal  relation  and  as  one  reckless 
partner  may  bankrupt  his  associates,  the  selection  of  partners 
is  a  vital  matter.  No  one  can  be  forced  to  accept  a  partner 
he  does  not  like.  So  a  new  partner  may  not  be  admitted  except 
with  the  unanimous  consent  of  the  entire  firm. 

Because  of  the  importance  of  the  personnel,  the  death  of 
one  partner  will  ordinarily  dissolve  the  firm. 


3SO 


PARTNERSHIP 


Note: 


I. 


Partnership  is  a  personal  relation  and  a  partner 
should  always  be  a  man  who  can  be  trusted. 


§  293.    Classification  of  Partnerships 

Partnerships  may  be  roughly  divided  into  two  classes, 
general  and  special.  While  this  classification  covers  the  ma- 
jority of  cases,  there  are  a  few  forms  involving  peculiarities 
of  partnership  law,  such  as  limited  partnerships  and  joint-stock 
companies,  which  require  separate  discussion. 

A  general  partnership  is  the  usual  partnership  formed  for 
the  continued  prosecution  of  some  general  line  of  business. 
It  is  the  commonest  form  of  partnership.  General  partner- 
ships may  be  either  trading  or  non-trading. 

Trading  partnerships  include  all  those  formed  for  the  pur- 
pose of  buying,  selling,  and  manufacturing. 

Non-trading  partnerships  do  not  buy,  sell,  or  manufacture 
as  a  principal  feature  of  their  business.  These  partnerships  in- 
clude professional  partnerships,  firms  of  brokers,  etc. 

A  special  partnership  is  formed  for  the  transaction  of  some 
single  piece  of  business,  or  for  the  conduct  of  some  one  line 
of  business.  Examples  of  special  partnerships  are  as  follows : 
a  partnership  to  buy  and  sell  some  definite  piece  of  land,  to 
ship  a  cargo  to  some  particular  place,  to  buy  and  operate  a 
threshing  machine,  to  finance  and  sell  a  particular  patent,  or 
to  deal  in  specified  stocks.  A  common  form  in  the  present 
day  is  the  syndicate  organized  for  the  promotion  or  financing  . 
of  some  large  corporate  enterprise.  Special  partnerships  arev 
often  termed  "joint  ventures."  It  is  to  be  noted  that  a  special 
partnership  means  one  undertaken  for  a  special  business,  while 
a  special  partner  simply  means  a  limited  partner. 

A  limited  partnership  may  be  formed  only  under  special 
statutes.  It  differs  from  the  ordinary  partnership  in  that  cer- 
tain of  its  partners  are  silent,  or  inactive,  and  the  liability  of 


THE  CONTRACT  OF  PARTNERSHIP 


351 


these  partners  is  limited  to  the  amount  actually  invested  by 
them.  These  partners  are  called  special  partners.  If  a  partner 
whose  liability  is  thus  limited  takes  active  part  in  the  conduct 
of  the  partnership  business,  his  status  changes  and  he  at  once 
becomes  liable  as  a  general  partner. 

The  restricted  liability  enjoyed  by  the  special  partner  can 
be  secured  only  by  strict  compliance  with  the  statutory  direc- 
tions. These  usually  prescribe  notice  to  the  public  of  the 
formation  and  nature  of  the  partnership  and  require  that  a 
certificate  and  affidavit  of  the  limitations  of  the  partnership  be 
filed  in  some  office  of  public  registry.  In  New  York  a  limited 
partner  must  contribute  his  capital  in  cash.  In  all  cases  the 
local  statutes  should  be  examined,  and  their  directions  fol- 
lowed implicitly.  In  a  New  York  case  a  limited  partner  was 
held  by  the  courts  to  be  in  fact  liable  as  a  general  partner 
merely  because  the  affidavit — stating  that  cash  had  been  paid 
by  the  limited  partner — was  filed  at  a  time  when  he  had  in 
fact  given  only  a  check  dated  a  few  days  in  advance. 

A  joint-stock  company  is  a  form  of  business  organization 
formerly  popular  but  now  practically  obsolete.  It  is  not  or- 
ganized under  any  statute,  and,  though  usually  adopting  a 
corporate  name  and  having  some  of  the  features  of  a  corpora- 
tion, is  merely  a  copartnership,  and  the  shareholders  are  re- 
sponsible for  the  debts  of  the  company  as  in  partnership. 

An  important  difference  between  such  an  organization  and 
an  ordinary  partnership  is  that  its  members  may  transfer  their 
interests  exactly  as  stockholders  do  in  a  corporation.  If  there 
are  many  members,  affairs  are  usually  managed  by  a  board  of 
trustees  or  managers,  and  the  individual  members  have  no 
authority  to  act  in  the  company  affairs. 

In  New  York  and  some  other  states  various  forms  of 
joint-stock  companies,  partnership  associations,  and  other 
ambiguous  organizations  between  partnerships  and  corpora- 
tions are  authorized  by  statute.    These  statutes  and  the  deci- 


352 


PARTNERSHIP 


sions  of  the  state  courts  construing  them  must  be  consulted  to 
ascertain  their  legal  status. 


Review  Questions 


1. 


3- 


What  is  the  law  as  to  a  minor's  becoming  a  partner? 

What  is  a  general  partner?     A  limited  partner?     A  dormant 

partner?    A  nominal  partner?    A  subpartner? 
What  is  a  limited  partnership?    What  does  your  own  state  law 

prescribe  for  the  formation  of  a  limited  partnership? 

4.  What  is  a  partnership  at  will? 

5.  In  the  event  that  the  name  of  a  partnership  does  not  clearly 
indicate  who  all  the  principals  of  the  firm  are.  what  is  neces- 
sary for  such  a  firm  to  do  in  order  to  bring  suit  ? 

6.  Why  should  a  partnership  agreement  be  written?  How  can 
parties  drift  into  a  partnership? 

7.  What  is  a  special  partner?    What  is  a  special  partnership? 

8.  What  are  the  peculiarities  of  a  joint-stock  company? 

9.  What  matters  should  be  specified  in  articles  of  copartnership? 
Prepare  a  short  form  of  partnership  agreement  for  equal  part- 
ners. 

Prepare  a  copartnership  agreement  that  shall  provide  for  a 
period  of  five  years  notwithstanding  the  death  of  one  of  the 
partners  in  the  meantime,  and  provide  also  for  payment  of 
interest  on  investments,  salaries  to  partners,  and  a  method  of 
determining  and  apportioning  profits  and  losses. 

A  buys  the  share  of  M  in  a  partnership  composed  of  M,  N".  and 
O.  Does  that  make  him  a  member  of  the  firm?  Explain 
answer. 

13.  B  withdraws  by  agreement  from  a  firm  of  which  he  has  been  a 
member,  but  no  announcement  is  made  and  he  allows  his  name 
to  be  used  on  the  letterhead.  The  firm  becomes  insolvent 
What  is  B*s  position? 


10. 


II. 


12 


CHAPTER  XLV 

PARTNERSHIP  PROPERTY 

§294.     Nature  of  Partnership  Property 

The  partnership  investment  is  the  money  or  property, 
tangible  or  intangible,  contributed  by  the  partners  for  the 
purposes  of  the  business.  The  original  property  of  a  partner- 
ship is  derived  from  the  contributions  of  the  partners.  When 
profits  are  made,  they  may  be  drawn  out,  or  they  may  be 
allowed  to  accumulate  and  meanwhile  may  be  used  in  the 
prosecution  of  the  firm's  business.  If  retained  in  the  business 
they  are  practically  merged  in  the  original  capital,  ,the  two 
together  constituting  the  partnership  property. 

Any  property  purchased  with  partnership  funds  becomes 
prima  facie  partnership  property.  If  such  property  is  taken  in 
the  name  of  a  single  partner,  he  holds  as  trustee  for  the  firm. 
The  firm  name,  the  good-will  of  the  business,  and  any  trade- 
marks used  in  the  business  are  the  property  of  the  partnership, 
in  which  each  partner  has  his  interest. 

When  the  business  is  sold,  the  firm  name  passes  with  it. 
If  the  business  is  sold  as  a  whole,  the  good-will  passes  with 
the  firm  name  and  the  tangible  assets. 

A  firm  as  such  cannot  hold  real  estate.  Hence,  land  must 
be  deeded  to  the  members  of  a  firm  to  hold  as  tenants  in 
common,  or  to  some  individual,  who  is  usually  a  member  of 
the  firm,  to  hold  as  trustee  for  its  benefit.  A  conveyance  of 
real  estate  to  a  firm  by  name,  in  cases  where  the  firm  name 
contains  the  name  or  names  of  existing  members,  passes  a 
legal  title  to  the  members  named,  who  will  hold  in  trust  for 

353 


354 


fARTNERSmP 


Ae  whole  firm.    If  no  member  is  named  in  the  firm  tide,  no 

S  toT /'rr'; '"'  ^  ^"•^^  "^  '^''^  "^  ^^-p^'^  to 

aeed  to  the  mdividnal  members  of  the  firm 

or  tL^^"^'"''  'T"^  '^  P^'^"^  P^°P^^-  The  mSey 
Zw^Tl  7""'"^  '"  "  partnership  and  any  property  ac- 
quired by  aie  firm  is  partnership  property.  Each  partner  may 
dea^  w.th  .t  in  the  firm  business  as  an  agent  of  L  CZt 
he  has  no  personal  right  to  any  of  it. 

ev«f  r"?"  *^'  "°  '^'"  ***  ^*"*='*  °"  '^^  investment,  nor 
even  to  mterest  on  money  put  in,  over  and  above  his  agreed 

mvestaent.  unless  it  has  been  expressly  so  agreed.    It  is  alwa^ 

possiUe  for  a  partner  to  advance  money  or  to  let  the  fim 

have  the  use  of  property  of  which  he  retains  the  right  to 

^oTr"  M     '"'*  ""^'^  °'  P^P*^^  '«"^'"«  h's  individual 
property.    Money  or  property,  however,  put  into  a  partnership 

«  a«  ^n.esfn,ent  becomes  the  actual  property  of  tJe  partZ 

Power  Over  Personal  Property  of  Firm.    Each  partner's 
power  over  tl»e  property  of  the  firm  is  the  same     Each  is 
agent  for  aH  the  others  in  everything  that  pertains  to  the  car 
sale,  and  management  of  the  partnership  property 

witli^l'*""'  ^'^  *;^  P°*^^  to  ^y  and  seU  personal  property 
w^hm  the  scope  of  Ae  partnership  business,  and  the  fi^l 
^und  by  h.s  transactions.  This  power  does  not  extend  to  the 
sale  of  proper^  used  by  the  firm  for  carrying  on  the  firm 
busmess,  as  such  a  sale  would  tend  to  destroy  L  partnerZ 
business.    Where  a  sale  is  to  be  made  of  the  stock  b  Sde 

fiL   .,?'•'  '^''  ^^  °'  "^"^'^  «'  f"™iture.  all  of Te 
firm  should  join  in  the  assignment 

de J'rTeS' e.Z^'^^fuT  ?"l P'^^^ ^^°°*  "^^^  -  valid 
deed  to  real  estate  held  by  the  firm,  but  he  can.  when  such 

contract  is  within  the  scope  of  the  partnership  bu  .rsfmake 

a  contract  to  convey,  which  the  courts  will  compel  the  firL 


PARTNERSHIP  PROPERTY 


355 


perform.  Likewise,  in  a  similar  case,  a  partner  can  make  a 
valid  contract  for  the  purchase  of  land  by  the  firm. 

A  partnership  may  be  formed  by  either  written  or  verbal 
contract  for  the  express  purpose  of  buying  and  selling  real 
estate.  In  such  cases  the  realty  is  treated  for  all  partnership 
purposes  as  if  it  were  personalty. 

For  a  legitimate  purpose  a  partner  has  also  the  right  to 
pledge  or  mortgage  the  real  property  of  the  firm.  He  has, 
however,  no  power  to  sell  property  of  the  firm  or  to  borrow 
money  upon  it  for  his  own  purposes  or  to  pay  his  own  debts, 
and  anyone  lending  him  money,  or  buying  property  from  him 
under  such  circumstances,  with  knowledge,  takes  no  title  to 
the  property  in  question. 

The  wife  of  a  partner  has  no  right  to  dower  in  real  estate 
held  for  the  purposes  of  the  firm  until  all  the  claims  of  credit- 
ors and  of  all  the  other  partners  have  been  satisfied.  In  a 
solvent  firm,  however,  the  wives  of  the  partners  would  be 
entitled  to  dower,  and  when  such  property  is  sold  the  wives 
should  release  their  dower  rights. 

Notes: 

1.  A  partner  has  a  right  to  make  use  of  firm  property 

for  the  purposes  of  the  business  in  common  with 
all  the  other  partners. 

2.  He  has  no  right  to  firm  property  personally  until  the 

firm  has  been  wound  up  and  the  assets  divided, 
unless  he  has  loaned  property  with  the  express 
provision  that  it  is  to  remain  his  individually. 

§  295.    Liability  of  Partnership  Property  for  Debts 

A  partner's  interest  can  be  reached  by  attachment  or  by 
execution.  This  interest,  however,  is  merely  a  right  to  a  cer- 
tain proportion  of  the  surplus  after  debts  are  paid  and  the 
affairs  of  the  partnership  are  adjusted,  and  this  is  all  that  can 


I 


IS6 


PARTNERSHIP 


S^rZS^.^  '"^  P'*^"''-  "^^  «^ff«t  of  the  sale  of  a 
Satr  t  T  ""^"  "^"*^°°  *°"1«^  •'«  to  give  the  pur! 
Sor  tV'^  V!:  ""c"'^  *«=  ^^«  '"t^««t  »  vdue  that  "he 

of  its  affnJrc  %  partnership,  and  the  immediate  settlement 
anj^ingTs  set  aside  LTfrltf  ""'*  "^  ""'^"^  '^''"' 
«„fi!l'^^°"  following  judgment  on  adLXSnsUhe  firm 

ZJZ  Pf'*"''"''"P  P^P^rty.  or  on  the  individual  property  of 
Partner  M  T""'-    "  '*  '^  ^^^«^  -  '"<J-'dual  propeTthe 

Se  Xr  J^'""  '"*  rP^-^  '^'O"^  h^  recourse  a^ns 
the  other  partners  for  their  proportions  of  the  debt. 

appKedTth?  '"^"'^^"^  *^  partnership  assets  should  be 
applied  to  the  payment  of  the  partnership  debts  and  the 
eparate  assets  to  the  payment  of  the  individual  deb S  Sd  ^v 
surphis  from  either  class  should  be  carried  over  to  the  pal^nl 
of^^^e  other  dass.    This  process  is  caUed  "Z^^i^^^l 

for  wr^°°  '^'"'*  *'  partnership  there  can  be  no  claim 

ie  e3tw°^  f  r/""  °"'  "^  *^  J°"*  ^-^t^-  This  S 
oL^f  ^'  ^'.''J'^'  "ot  «PPly  to  New  York  and  a  few 
other  states,  m  which  tlie  provisions  of  the  exemption  law 
extend  to  property  owned  by  a  partnership  of  whichTe  debtoT 
was  a  member.    (See  §  300  )  »  wnicn  tlie  debtor 

*Le  SeA J      f  t*^"  ^  "'''^'  °"'y  ^y  ^  «^«  Partners 
actmg  together.     If,  however,  one  partner  makes  such  an 

assigmnent.  the  others  may,  if  they  choose,  ratify  his  action 

thus  making  Ae  unauthorized  assigmnent  valid    In  c^L  a 

partner  has  absconded,  or  cannot  be  reached,  the  rem35„^ 

^embers  of  the  firm,  acting  together,  may  mak;  a  vaJd  asSI^- 

It  has.  however,  been  held  in  New  York  that  one  partner 


PARTNERSHIP  PROPERTY 


357 


may  transfer  the  partnership  effects  directly  to  a  creditor  of 
the  firm,  without  the  knowledge  or  consent  of  his  associates, 
and  that  the  courts  will  sustain  his  action. 

Under  the  National  Bankruptcy  Law,  however,  in  any  case 
where  an  assignment  is  made  when  the  firm  is  insolvent,  any 
aggrieved  creditor  may  proceed  under  the  Bankruptcy  Act. 

For  the  liability  of  individual  partners  to  third  persons, 
see  §§  287,  300. 

Note: 

I.  If  an  assignment  of  partnership  property  has  been 
made,  any  creditor  can  institute  bankruptcy  pro- 
ceedings. 

§  296.    Profits 

The  sharing  of  profits  is  an  essential  feature  and  the  usual 
object  of  a  partnership.  Ordinarily  these  profits  are  ascer- 
tained by  deducting  the  current  expenses  from  the  current  re- 
ceipts, or  gross  profits,  or,  on  dissolution  or  any  general 
accounting,  by  deducting  the  firm  indebtedness  and  the  original 
partnership  investment  from  the  total  partnership  assets.  As 
there  is  often  room  for  differences  of  opinion  as  to  what  con- 
stitutes profits,  it  is  well  to  define  in  the  articles  of  association 
how  they  are  to  be  determined. 

In  the  absence  of  a  special  agreement  otherwise,  the  com- 
mon law  rule  governs  the  division  of  both  profits  and  losses. 
Under  this  the  partners  must  share  equally,  without  any  varia- 
tion, or  any  allowance  for  the  greater  value  of  services 
rendered,  the  greater  amount  of  time  devoted,  or  the  greater 
investment  made  by  one  or  the  other  of  the  partners.  This 
is  usually  arranged  by  agreement,  however,  so  that  partners 
who  devote  more  time  or  money  to  the  business,  receive  a 
more  nearly  commensurate  return.  Salaries  for  services  and 
interest  on  investments  are  sometimes  provided  for  in  the  part- 
nership agreement. 


358 


PARTNERSHIP 


The  rule  Of  good  faith  requires  that  all  profits  made  within 
the  scope  of  the  partnership  business  shaU  be  turned  in  for  the 
benefit  of  the  entire  firm.  If  any  partner  violates  this  rule  and 
uses  his  position  in  the  firm  and  the  knowledge  he  has  of  the 
busmess  to  secure  any  secret  rebates,  commissions,  or  other 
profits  for  himself,  he  wiU,  if  discovered,  be  held  liable  to  the 
firm  for  the  amount  so  realized. 

If  a  partner  uses  firm  funds  in  his  private  speculations  he 
can  be  compelled  to  account  for  any  profits.  If  the  result  is  a 
loss,  he  must  bear  this  himself,  returning  the  partnership  funds 
intact  This  rule  also  applies  to  the  use  for  private  gam  of 
time  or  skiU  which  should  be  apphed  to  the  firm  business. 

Right  to  an  AccounHng.  Every  partner  is  entitled  to  have 
accurate  accounts  kept.  The  right  exists  whether  or  not  any 
reference  has  been  made  to  it  m  the  terms  of  agreement.  This 
makes  it  the  duty  of  each  partner  to  keep  an  accurate  record 
of  his  own  transactions  concerning  the  firm  business.  If,  as  is 
usuafly  the  case,  some  one  partner  or  some  particular  employee 
is  designated  to  keep  the  firm's  books,  it  is  the  duty  of  each 
partner  to  furnish  such  accountant  full  information  as  to  his 
transactions. 

It  is  also  the  right  of  every  partner  to  have  access  to  the 
firm's  books  and  accounts  and  to  make  extracts  therefrom. 

In  closing  the  books  to  ascertain  amounts  due  partners  the 
partners  are  bound  by  a  bookkeeper's  statement  either  by 
mutual  signature  thereto,  or  by  failure  to  object  within  a 
reasonable  time  after  submission  to  them  of  the  statement; 
or  by  any  action  which  would  imply  acceptance. 
Notes: 

I.    Any  proposed  extra  share  of  profits  to  any  partner 

should  be  specified  in  the  partnership  agreement 

a.    The  books  of  account  should  always  be  kept  at  the 

office  of  the  firm,  or,  if  it  has  more  than  one,  at 

the  principal  office. 


PARTNERSHIP  PROPERTY 


359 


Partners  should  make  every  effort  to  keep  their 
accounts  straight,  for,  if  the  accounts  have  been 
garbled  or  falsified  or  the  books  mutilated,  every 
presumption  will  be  allowed  against  the  partner 
who  is  at  fault. 


Review  Questions 

1.  What  is  the  capital  of  a  partnership? 

2.  What  does  the  partnership  property  include? 

3.  May  a  firm  pass  title  to  personal  property  of  the  partnership  by 

bill  of  sale  in  the  business  name  of  the  firm? 

4.  May  a  member  of  a  firm  sell  out  the  entire  assets? 

5.  Can  a  partner  sell  firm  real  estate? 

6.  May  a  good  title  to  firm  realty  be  passed  without  the  wives  of 

the  partners  joining  in  the  deed? 

7.  A  and  B  are  partners.     C  recovers  a  judgment  against  A  for 

a  personal  debt,  but  can  find  no  personal  property  on  which 
to  levy.  What  can  C  do?  What  effect  has  the  bankruptcy 
of  one  of  the  partners  upon  the  partnership? 
a  Define  partnership  profits.  What  is  the  general  rule  for  division 
of  profits?  If  the  partnership  agreement  merely  provides  for 
division  of  profits,  how  will  losses,  if  any,  be  borne? 

9.  A  firm  composed  of  three  members  was  about  to  dissolve  part- 

nership and  go  out  of  business.  It  occupied,  and  had  for  many 
years,  premises  which  the  firm  leased  and  did  not  own.  One 
of  the  members,  without  the  knowledge  of  his  copartners, 
obtained  a  lease  of  these  premises  some  time  prior  to  the 
dissolution  of  the  firm,  but  when  it  was  contemplated;  the 
new  lease  to  begin  when  the  old  one  expired.  After  the 
dissolution,  he  sold  the  lease  for  a  large  sum  of  money.  Is 
he  under  any  obligation  to  account  to  his  partners  for  the 
profits  thus  realized  as  if  the  same  were  partnership  property? 
Give  reasons  for  your  answer. 

10.  A  and  B  are  in  partnership  under  a  written  agreement  whereby 

A  because  of  his  greater  investment  and  experience  is  to  have 
two-thirds  of  the  profits,  nothing  being  said  as  to  losses.    At 


36o  PARTNERSHIP 

expiration  of  one  year  the  firm  dissolved,  having  lost  $5,000. 

How  will  this  loss  be  apportioned?    Why? 
When  a  judgment  is  obtained  against  a  firm,  can  execution  be 

levied  on  the  personal  property  of  the  members? 
How  should  the  assets  of  a  copartnership,  and  the  assets  of  the 

respective  individual  members  thereof,  be  applied  when  the 

several  members  owe  individual  debts  in  addition  to  the  debts 

owed  by  the  copartnership? 
In  closing  books  to  ascertain  amounts  due  partners,  what  is  it 

necessary  to  do  in  order  to  bind  partners  to  results  shown? 


II. 


12. 


13. 


til 


CHAPTER  XLVI 

POWERS  AND  LIABILITIES  OF  PARTNERS 

§  297.    Powers  of  Partners 

In  a  partnership  each  partner  has  equal  authority  with 
the  others  and  is  held  to  be  the  agent  of  the  others,  and  of  the 
firm,  for  any  transactions  within  the  scope  of  the  partnership 
business.  Hence  each  partner  within  this  limit  is  bound  by  the 
acts,  the  contracts,  and  even  the  frauds  of  his  associates,  and 
is  responsible  for  the  obligations  and  liabilities  so  created  as 
fully  as  if  he  had  himself  acted  or  contracted. 

In  the  absence  of  special  restrictions  on  the  agency  powers 
of  the  partners,  they  are  limited  only  by  the  scope  of  the 
partnership  business  and  by  the  ordinary  limitations  of  the 
powers  of  agents.  Thus,  under  his  general  powers,  a  partner 
acting  alone  may  bind  the  firm  in  any  matter  properly  withm 
its  business  operations.  He  must,  however,  be  authorized  be- 
fore he  can  bind  it  by  executing  a  sealed  instrument  m  the 

firm  name.  , 

Partnership  notes,  as  firm  obligations,  come  under  the 
general  rules  for  mutual  agency.  Every  member  of  a  trading 
firm  has  a  right  to  make  and  indorse  notes,  and  to  make, 
accept,  and  indorse  drafts  and  other  commercial  paper  in  the 
firm  name.  One  of  the  members  may  use  this  power  fraudu- 
lently or  for  his  private  benefit,  but,  unless  the  payee  or  owner 
of  the  note  is  aware  of  this  fact,  the  firm  is  liable  on  the  note. 
In  the  case  of  a  non-trading  or  professional  partnership, 
however,  it  is  not  customary  for  the  partners  to  bind  the  firm 
by  issuing  negotiable  paper,  and  unless  it  can  be  shown: 

361 


S62 


PARTNERSHIP 


III  I 


II 


If  the  business  does  not  rpninV-  *,^* 
instnnnent  signed  by  a  paS^l^  1°^"'''"'^  ^^  ^"^ 
ejected  or  accepted'at  '^I^Zont  Z  Z  "^^  "^^  "^ 
»t  cannot  be  enforced  against  the  firT  2?  k  1  "'"=''*^' 
signing  would  be  liable.  '       "^''  *^  Partner 

as  such  an  act  wouldTl^  S.^^*  ^/f^-i^-^     — - 

of  fte  partner,  but  if  such  a  note  wT^e  ZZZ^  "*°"*^' 
on  for  value  to  an  innocent  »,«m      -.  "^  ^^^  Passed 

A«  indorsement  Tf  TS^fb      '^°"'*^  """^  *^  «™- 

of  a  third  party,  outside  oTth^Spe'^of'^r;  °"  ^  "°*^ 
ness,  would  be  void.  ^      ^  Partnership  busi- 

an  oi  t^Se^^illT'''  t^  ^^^^^  °^  -^  -e  or 
articles.  sX^tSS  do  nTh  "  '^  """''^'^^"^  '"  *e 
sons,  unless  they  have  h  n^d  "^fX'Snf  7  ^^^^^  P^^' 
partnership.  the  partner  whose  Kabrntfr,  T!' /"  *  ^""^^ 

part  in  the  management.    In  uA  att  2T1 '?"  *^^  "° 
powers  and  the  general  nature  «^  a        ^  '"Stations  of  his 

to  *ird  parties  LdeT'th'^^^^^^t  Stetj  "^  -««^«^ 
such  partnerships.  ^  °*  "''^  "aws  regulating 

eni%ri:%:r:o£vrmir'  ^^  ^'^^  ^^^ 

without  regard  S  the  amounTorv  °?^^«"«'t  of  its  affairs 
n«y  decidf  an  nutteHrbus  1^"^^"*.  ^^"^i-Hty 
relating  to  the  general  conduct  of  l'^'^  ""^  ^  •1"^^*'°'« 
t«»  what  extent%rofits  a7e  to t  Jiv'ded""' "^^  "'"^  ^^^ 
-atters  are  not  prescribed  in  the  t^cltsoTc"  "^  ^"^ 
^'  -^o^^^  -,  however,  in  JT^  ^V^'^ 


POWERS  AND  LIABILITIES  OF  PARTNERS 


363 


consult  with  the  minority  in  regard  to  any  proposed  action, 
and  must  allow  the  minority  to  be  heard  in  discussion  of  the 
same.  They  cannot  apply  the  capital  to  new  undertakings 
outside  the  scope  of  the  partnership  business,  nor  can  they  seek 
their  own  interest  as  against  the  common  interest 

Where  the  partners  are  evenly  divided  concerning  any 
proposed  action,  a  deadlock  results  and  those  who  want  to 
make  a  change  are  at  a  disadvantage.  In  a  partnership  of  two 
no  change  can  be  made  and  no  new  action  undertaken  unless 
both  can  agree.  Where  articles  of  copartnership  exist  no 
change  can  be  made  in  any  part  save  by  unanimous  consent 
of  all  the  members  of  the  firm.  Disputes  among  partners 
generally  result  in  dissolution  and  final  accounting.  Some 
partnership  agreements  provide  for  arbitration,  but  the  courts 
generally  refuse  to  sustain  arbitration  and  decree  a  dissolution 
instead. 

A  single  partner,  by  reason  of  his  powers  as  an  agent  of 
the  firm,  may  often  commit  his  associates  to  action  against 
their  wishes.  In  such  case,  the  only  remedy  is  to  dissolve  the 
partnership. 

A  partner  as  such  does  not  generally  have  authority  to 
do  any  of  the  following  acts,  except  where  his  partners  have 
wholly  abandoned  the  business  to  him  or  are  incapable  of 
acting: 

1.  To  confess  judgment. 

2.  To  dispose  of  the  good- will  of  the  business. 

3.  To  make  an  assignment  of  the  partnership  property 

to  a  creditor,  or  to  a  trustee  for  the  benefit  of  a 
creditor  or  of  all  creditors. 

4.  To  do  any  act  which  would  make  it  impossible  to 

carry  on  the  ordinary  business  of  the  partnership. 

5.  To  submit  partnership  claims  to  arbitration. 

As  to  partner's  power  over  firm  property,  see  §  294. 


364 


PA&TNERSHIP 


III! 


■"  |l: 


Notes: 

I-    """y^striction  is  to  be  made  on  the  agency  powers 
be  notified  m  order  to  protect  the  firm 

own  fault  ,f  he  accepts  notes  and  contracts  that 

S  thTl^^'T-  *.'^''''  "*'*  ^'"^  *«  «™t« 
ot  the  partnership  business. 

^        L^^luV^^T'^'^y'  ^'  "^y  bind  his  CO- 
partners  without  right 

§398.    Liabilities  to  Copartners 

who^'rrfL'^s?  \T^''  ^^^*'''"'  -•^  *- 

their  assodates     S^l      ^''  ''^""'''^  ^^  ^^'^^  toward 
the  L^.  I?',,-    '^  P^r^"  "^y  ^^  ''is  own  advantage  at 

and  pnvate  profit  out  of  a  transaction  in  the  h„e  of  S^J^ 
nership  busmess.    AU  transactions  must  bl  for  th!  ^   ^ 
good  and  in  important  matters  a  pTiSer  sh^d  el,  T.T 
assoaates  before  taking  action  "^'  •"' 

proft  ^T7  *'"  "°'  '^  ""*'*«'  *°  '"^in  »n  "«fairly  made 
prow,  nor  to  compete  with  hk  fJr™      tr  / 

pressly  restricted  bThis^nlf  J?"  "'^^'  "^'^  «" 

;«^        J  **-"*//  lus  pannership  ac^reenient   carrv  ««  *^ 

ndependent  non-competing  business  of  lis  o^'pr^Sed  tht^ 
It  does  not  mterfere  with  Ws  duty  to  his  fi^     T         1 
nuule  in  a  competing  busmess,  or  2^  a  bules^that  h"^  ??'* 
fere  with  the  firm  business  w^uld  L  he^d To  W  k  T 

for  the  firm,  and  the  other  partners  conM  ,  ^."  "'^''•^ 

date  to  account  for  his  unfarSte     H^  Tf^u'''  "*^ 
for  the  firm  for  any  gains  1^7     a  "'**  ^  *  *™^t« 

a  frustee  for  any  pZeS^u^ch.!'  A  ^  l"'^"'  ^°"''  ^^^'^  >>«= 
ship  funds.       ^  ^    ^^  '^"''''"'"'  "^  '^'^  "^«  with  partner- 
In  the  absence  of  any  restrictions  in  the  articles,  a  partner 


POWERS  AND  LIABILITIES  OF  PARTNERS 


36s 


tnay  give  to  non-competing  ventures  time  which  might  have 
been  devoted  to  partnership  affairs.  He  may  also  use  informa- 
tion acquired  by  him  in  the  partnership  business  in  his  private 
undertakings,  provided  these  latter  are  not  within  the  scope  of, 
and  do  not  compete  with,  the  business  of  the  firm. 

Notes: 

1.  Good  faith  is  necessary  in  all  dealings  between  part- 

ners. 

2.  The  partnership  agreement  should  provide  that  each 

partner  shall  give  his  whole  time,  or  a  specified 
part  of  his  time,  to  the  partnership  affairs. 

3.  A  partner  can  retire  at  any  time  and  so  dissolve  the 

partnership. 

4.  A  retiring  partner  should  examine  the  local  laws 

with  care  to  make  sure  he  has  complied  with  the 
legal  requirements  for  notice  of  the  severing  of 
his  connection  with  the  firm. 

§299.    Intra-Partnership  Relations 

A  partnership  is  not  a  separate  entity  as  is  a  corporation. 
It  cannot  sue  or  be  sued  in  the  firm  name.  Suit  against  a 
firm  or  by  a  firm  is  a  suit  against  or  by  the  individuals  who 
comprise  it.  Therefore  a  partner  cannot  sue  the  firm,  neither 
can  the  firm  sue  one  of  its  members. 

In  event  of  partnership  controversies,  which  cannot  be  set- 
tled by  conference,  by  buying  out  one  or  more  partners,  or  by 
arbitration,  the  only  recourse  is  a  dissolution  and  accounting. 

A  partner  cannot  sue  another  partner  for  any  matter  re- 
lating to  the  partnership  but  can  sue  him  for  any  individual 
cause  not  relating  to  the  partnership. 

Two  partnerships  having  common  members  or  a  common 
member  cannot  bring  suit  against  each  other.  In  some  part- 
nership cases  when  actions  at  law  will  not  lie,  an  action  may 
be  brought  in  equity  but  in  such  case  it  usually  means  the 


Ilifi 


$66 


PARTNERSHIP 


POWERS  AND  LIABILITIES  OF  PARTNERS 


I. 
2. 

3- 


dissolution  of  the  firm     Th*  <r««i4>..^i      i       , 

nership  cases  are:  ^'"^  "^^  °'  "l'"^  ™  P^^* 

Not  to  interfere  except  to  dissolve  the  partnership. 

Not  to  interfere  in  internal  disputes 

Not  to  interfere  on  behalf  of  the  offending  party 

or  where  the  party  applying  has  been  negligent 

in  making  application. 

In  some  cases,  however,  a  court  of  equity  will  erant  an 
^^on  without  decreeing  a  dissolutio^"   It  wodl^i" 

in  a  partnership  controversy. 

§300.    LiaWUties  to  Third  Persons 

Where  a  partnership  is  admitted  or  proved  and  wher^  , 
contract  within  the  scope  of  the  partnership  bSnShls^ 

fte  STnl  i'^""'*  *.'  ^""'  ^^*="*'°"^  "^y  be  levied  on 

SrrS^er?  ;''  *'  '1'*'"°"  ""^^  *^^  judgment  against 
aU  the  partners  and  may  then  proceed  to  coUect  their  daims 

from  firm  assets  or  from  the  property  of  any  one  or  mo^^ 
&em.  leavmg  Ae  partners  to  adjust  the  matter  between  the,^ 
selves  afterward  as  best  they  may. 

A  partner  is  liable  in  damages  for  the  torts  frauds  :,«A 
wrongdoing  of  his  partner  within  the  scope  of  Ae  pTrtnerSo 
business,  but  usually  he  will  not  be  held  crimin^^Se  ' 
hact'^f  Z°  ^^  ^"^  *^"»  »  »fter  the  partnership 

t  fi^nrion-"  T  "^^'"•"'^  '°^  obligations'or  a^T^f 
the  firm  pnor  to  his  entrance,  unless  he  expressly  assumes  them 

,     Notes: 

I.  In  order  to  enforce  partnership  liabih'ty,  third  per. 
sons  must  as  a  rule  prove  the  existence  of  a 
partnership. 


367 


2. 


The  onerous  character  of  partnership  liability  de- 
mands prudence  in  selecting  a  partner. 


Review  Questions 

1.  What  relation  of  a  partner  to  the  firm  gives  him  authority  to 

act?    What  is  the  limit  to  this  authority? 

2.  Has  a  partner  authority  to  make  and  indorse  commercial  paper 

for  his  firm?  If  he  discounts  the  firm  note  for  his  own 
benefit,  is  the  firm  liable?  What  is  the  rule  for  professional 
partnerships  ? 

3.  What  effect  do  limitations  on  partners*  powers  in  articles  of 

copartnership  have  on  outsiders? 

4.  A  sells  goods  to  a  partnership  on  the  customary  terms  in  his 

line,  namely,  four  months'  credit.  The  goods  are  delivered 
and  used  by  the  firm,  but  when  the  amount  is  due,  payment 
is  refused  on  the  ground  that  the  partnership  articles  stipulate 
that  no  partner  shall  bind  the  firm  to  a  time-purchase  contract, 
but  that  all  purchases  shall  be  cash.  A  knew  of  this  agree- 
ment.   Can  he  recover?    Explain  the  theory. 

5.  How  are  differences  of  opinion  settled  in  a  partnership? 

6.  What  things  are  beyond  the  authority  of  a  partner  to  do  unless 

specially  authorized? 

7.  May  a  partner  take  part  of  his  time  for  his  own  affairs?    What 

is  the  effect  if  he  engages  in  a  business  that  competes  with 
the  firm  business? 

8.  Can  one  partner  sue  another?     Can  one  partner  bring  suit 

against  the  firm?  Can  the  firm  bring  suit  against  one  of  its 
members  ? 

9.  May  one  partner  bring  suit  against  another  for  what  may  be 

due  him  on  partnership  account? 

10.  If  a  partner  buys  a  debt  against  his  firm,  can  he  collect  it  by 

law? 

11.  What  is  the  liability  of  an  incoming  partner? 

12.  Is  the  new  member  liable  to  creditors  of  the  old  firm  by  a  con- 

tract made  with  the  members  of  the  old  firm  to  assume  the 
old  debts  and  be  liable  for  them  as  old  members? 

13.  When  would  a  partner  be  a  trustee  for  his  firm? 


TERMINATION  OF  PARTNERSHIP 


369 


llli 


n 


CHAPTER  XL VII 

TERMINATION  OF  PARTNERSHIP 
§301.    Termination  by  Agreement 

Upon  the  expiration  of  its  term  as  limited  by  the  partner- 
ship articles,  the  partnership  wiU  be  dissolved  in  any  particular 
manner  prescribed  by  the  articles,  or.  in  the  absence  of  such 
provisions,  m  accordance  with  the  rules  of  law. 

A  partnership  may  be  dissolved  at  any  time  by  unanimous 
agreement  regardless  of  the  period  fixed  by  the  articles  If 
any  of  the  partners  wish  to  continue  the  business,  they  may 
buy  out  partners  who  wish  to  retire  or  who  are  dissatisfied 

In  many  cases  the  most  satisfactory  method  of  disposing 
of  a  partnership  business  worth  preserving,  is  by  incorpora- 
?;  .      . '?  preeminently  a  dissolution  by  agreement.    (For 
methods  of  incorporation,  see  Chapter  L.) 

§303.    Enforced  Dissolution 

A  partnership  may  be  terminated  by  the  death  or  bank- 
ruptcy  of  a  partner,  or  by  the  sale  of  his  interest.  It  may  also 
be  dissolved  because  of  the  impossibility  of  continuing  the 
business  for  any  reason,  or  by  the  bankruptcy  of  the  firm 
Mere  insolvency  may  exist  for  an  indefinite  period  without 
affecting  tiie  partnership  relation,  but  an  assignment  by  the 
farm  for  the  benefit  of  creditors,  or  an  adjudication  of  bank- 
ruptcy terminates  the  partnership. 

•  If  a  partner  sells  his  interest  in  the  firm  to  a  stranger  it 
would  usually  terminate  the  partnership.  Neither  the  straneer 
nor  the  other  partner  or  partners,  can  be  forced  to  accept 


each  other  as  partners  and  either  can  take  steps  to  wind  up 

the  firm's  business. 

If  a  partner  wishes  to  terminate  his  partnership  relations, 
he  may  do  so  at  any  time  simply  by  giving  notice:  (i)  to 
the  members  of  his  firm,  (2)  to  those  dealing  with  the  firm, 
and  (3)  to  the  public  generally.  If  the  partnership  was  for 
a  given  term  which  has  not  expired,  the  partner  may  be  liable 
in  damages  to  his  associates  for  his  breach  of  the  partnership 
contract,  but  he  cannot  be  compelled  to  remain. 

After  giving  proper  public  notice  of  his  withdrawal,  the 
retiring  partner  is  no  longer  Hable  for  the  future  transactions 
and  obligations  of  the  firm.  He  remains  liable,  however,  on 
the  obligations  contracted  while  he  was  a  member  of  it.  The 
matter  of  notice  is  important,  as  it  is  the  only  way  in  which 
liability  for  the  future  obligations  of  the  firm  may  be  escaped. 
Owners  of  a  business  concern  which  had  changed  from  a 
partnership  to  a  corporation  have  been  held  personally  liable 
for  the  debts  of  the  corporation  because  they  neglected  to 
notify  those  with  whom  they  were  dealing  that  the  business 
had  been  incorporated. 

When  a  partner  dies  or  becomes  bankrupt,  or  when  war  is 
declared  between  the  countries  to  which  the  respective  partners 
belong,  the  partnership  is  forthwith  terminated,  the  relation 
of  mutual  agency  ceases,  and  neither  a  partner  nor  the  rep- 
resentative of  a  partner  can  bind  the  partnership  nor  the 
property  or  estate  of  either  partner  further.  Nothing  can  be 
done  except  to  liquidate,  pay  debts,  and  wind  up  the  partner- 
ship affairs. 

The  insanity  of  a  partner  does  not  work  a  dissolution,  but 
may  be  a  sufficient  reason  for  asking  a  dissolution  by  decree. 
If  the  insanity  is  temporary,  the  courts  will  not  decree  a 

dissolution. 

Where  it  becomes  apparent  that  only  loss  can  result  from 
the  further  prosecution  of  the  partnership  business,  any  part- 


inSBVISHM 


370 


PARTNERSHIP 


m 


ner  if  his  associates  wiU  not  agree  to  a  peaceable  termination 
of  the  business,  can  obtain  a  judicial  dissolution. 

A  breach  of  the  articles  of  partnership  by  any  of  the  part- 
ners, bad  faith,  or  misconduct  so  serious  as  to  affect  the  credit 
and  success  of  the  business  or  to  make  it  impossible  for  his 
associates  to  work  with  him,  is  good  ground  for  dissolution 

In  case  a  person  has  been  induced  to  enter  a  partnership 
by  false  representations,  he  can  at  once  dissolve  the  firm  or 
brmg  suit  to  have  the  whole  contract  rescinded  and  cancelled 
In  all  of  these  cases,  proceedings  may  be  instituted  to 
have  the  partnership  dissolved  and  to  secure  an  accounting  If 
necessary,  an  injunction  may  usuaUy  be  had  restraining  the 
defendant  partners  from  making  new  firm  obligations,  from 
interfermg  with  or  disposing  of  firm  property,  or  from  further 
conduct  of  the  firm  business.  The  appointment  of  a  receiver 
is  an  extreme  measure  to  be  resorted  to  only  when  the  interests 
of  some  member  of  the  firm,  or  of  outside  creditors  are  in 
urgent  need  of  protection.    The  courts  are  slow  to  grant  it. 

The  right  to  an  accounting  is  a  necessary  corollary  to  the 
right  to  profits.    An  accounting  is  a  necessary  incident  of  a 
dissolution  unless  the  parties  have  already  agreed  upon  a  settle- 
ment, which  would  be  a  bar  to  the  right.    The  usual  procedure 
IS  to  appoint  a  referee,  or  refer  the  accounting  to  a  Master  in 
Chancery  to  examine  and  report  the  terms  of  the  partnership 
the  accounts  that  have  been  kept,  the  capital  invested  and  with- 
drawn, the  profits  and  the  losses,  the  assets  and  liabilities  and 
the  proportion  in  which  these  should  be  shared  among  the 
partners.    The  court  then  makes  its  orders  in  accordance  with 
this  report,  and  the  receiver,  or  the  partner  or  partners  in 
charge,  wiU  close  up  the  business  pursuant  to  these  directions. 

Notes: 

1.    Where  it  is  necessary  actually  to  wind  up  the  busi- 
ness, any  agreement  reached  between  the  partners 


m» 


TERMINATION  OF  PARTNERSHIP  371 

Should  provide  for  a  trustee  to  take  charge  of  the 
settlement  on  behalf  of  the  partners.  Thejjee 
ment  should  direct  the  closing  up  of  the  busine  , 
L  liquidation  of  its  assets,  the  collection  of  out- 
Sig  debts,  the  setUement  of  its  obhga  ions 
the  partition  of  losses  or  the  division  of  profits 
Tnd  the  withdrawal  of  the  investments  of  the 

uSeTno' circumstances  have  the  partners  in  an 
ordinary  partnership  the  right  to  expel  an  objec- 
:ibJmUer.  Theonly  way  toget  ndof  suA 
a  partner  is  through  a  dissolution  of  the  copart 

,     ThTlegS'  enforced  dissolution  of  a  partnership  is 
'■    ^'s  ow'and  costly  and  if  possible  shouM  be  aWed. 
Almost  any  agreed  dissolution  would  be  better. 

8,0^     Winding  Up  the  Business 

§303.     vvin      Br  Partners      Unless   otherwise 

Rights   and   Interests    of   ^f  5^  ^  i^  returned 

aweed  the  amount  of  each  partners  investmeni 
!   i!f^  in  full  on  dissolution  of  the  partnership,  if  there  are 
rurenras:fts°  Any  remainder,  ^^^^^^^^^ 
^en  divided  in  ^f^lZ:^::^^!,^^^^^  equally 

'"'"''''^TZ^^f.rtl^^^^onnt  to  belaid  each  on  his 
among  the  partners,  ana  t  ^^  ^j^t 

investment  account  mu^tb   ^^^^^^^   ^^  ^^^^^  p,,,es 

"  ^rLX?  ntTtheTands  of  the  remaining  partners, 
as  a  g«'ng  ~"?f."'.^"^^^„i^ed  by  proceedings  in  equity  or  m 
If  the  ^^'^^l^^;;,2X^..s  charge,  and  the  part- 
bankruptcy,  the   eceiver  or  ^^^^^^^  ^^^  ^^^^ 

Z^::^^^  thfbusiness  oUier  than  to  give  such  in- 


37^ 


m 


mi 


PARTNERSHIP 


TERMINATION  OF  PARTNERSHIP 


373 


succeeds  to  the  assets,  name,  good-will,  and  location  of  the 
fimi,  and  the  business  is  continued  as  a  going  concern  with 
the  minimum  of  disturbance. 

DuHes  of  Partners  on  DissoluHon,  If  the  business  is 
terminated  by  agreement,  by  Kmitation,  or  by  the  death,  in- 
sanity,  or  insolvency  of  a  partner,  it  is  usually  wound  m  by 
the  survivmg  or  liquidating  partner  or  partners. 

When  surviving  or  liquidating  partners  take  charge,  it  is 
their  duty  to  notify  people  who  have  dealt  with  the  firm  of 
Its  dissolution  and  of  the  fact  that  they  are  engaged  in  wind- 
ing up  affairs.  It  is  also  the  duty  of  these  partners  to  dispose 
of  and  fulfil  any  existing  contracts,  to  dispose  of  the  partner- 
ship property  to  the  best  advantage,  to  discharge  all  debts  and* 
obligations,  and  to  turn  over  to  each  person  entitled  thereto 
his  due  proportion  of  the  surplus. 

Right  of  Surviving  Partner,  In  the  case  of  the  death  or 
resignation  of  a  partner,  the  surviving  partner  or  partners 
have  a  right  of  possession  for  the  purpose  of  settling  up  the 
affairs  of  the  partnership,  but  after  this  is  done  the  right  of 
possession  ceases,  and  each  of  the  partners  has  the  right  only  ' 
to  his  proportion  of  the  partnership  assets  when  converted  into 
cash. 

A  surviving  partner  or  partners  would  have  power  to  sell 
property  of  the  firm  and  do  all  other  things  necessary  to  wind 
up  the  business. 

After  the  assets  of  the  firm  have  been  turned  into  cash 
and  the  debts  have  been  paid,  it  is  the  duty  of  the  surviving 
or  liquidating  partners,  first,  to  repay  any  advances  above  the 
stipulated  investment  of  capital  to  the  partners  who  made 
them;  next,  if  the  funds  permit,  to  return  the  capital  of  each 
partner.  Any  surplus  is  then  divided  among  the  partners  in 
such  proportion  as  the  partnership  agreement  may  provide,  or, 
if  there  is  no  provision  therefor,  in  equal  proportion. 

The  surviving  partner,  if  he  continues  the  business,  must 


account  for  the  value  of  the  good-will  of  which  the  firm  name 
is  part. 

f^o  tes  * 

1  Surviving  or  liquidating  partners  have  no  power  to 

bind  the  firm  to  new  contracts  or  to  undertake 
new  business.  Ordinarily  they  are  not  entitled 
to  compensation  for  their  services  in  settlmg  Oie 
firm's  affairs,  unless  the  business  is  to  be  earned 
on  for  some  time. 

2  The  good-wiU  of  a  business  is  often  a  most  valuable 

asset.  To  secure  compensation  both  for  the  good- 
will and  the  firm  name,  it  is  usually  necessary  to 
sell  the  business  as  a  going  concern. 


Review  Questions 

1  In  the  absence  of  an  express  agreement,  what  is  the  rule  for 

determining  the  duration  of  a  partnership? 

2  How  could  a  partnership  be  terminated  by  one  of  the  partners 

before  the  time  fixed  in  the  articles? 
,     What  happenings  will  terminate  the  partnership  relation? 
4.    Can  a  partner  sell  his  interest  in  a  firm,  and  if  so.  would  the 

purchaser  be  a  member  of  the  firm? 
c     A,  who  is  in  partnership  with  B,  desires  to  withdraw  from  the 

firm  because  of  B's  business  methods.    A  offers  to  sell  his 

share  to  B.    The  latter  refuses  to  purchase.    A  then  assigns 

his  interest  in  the  business  to  C,  but  B  refuses  to  accept  C 

as  a  partner.    What  are  C's  rights? 
6.    What  notice  should  a  retiring  partner  give?    Why? 
,.    If  a  retiring  partner  agreed  with  those  remammg  that  they 

should  assume  all  debts,  would  that  protect  him  as  against 

existing  creditors?  . 

8     Would  the  admission  of  a  new  member  terminate  the  old  part- 
nership  and  create  a  new  one  in  law  ?    Need  it  have  that  effect 

in  practice? 
9.    When  may  a  receiver  be  appointed? 


374 


PARTNERSHIP 


10.    Why  should  an  enforced  dissolution  be  avoided?    Suirir^st  ,n«. 
better  methnH«  r^f  «,;«^-  «»»umca.     :>uggest  some 

rt      ,  '^T^.'"^^'^««^s  of  winding  up  a  partnership. 

n.    In  winding  up  the  affairs  of  a  partnership:  (,)  What  is  the 

^^r  .e  o.„  ^rer/;r.: .  -E  X  caS 

'"■    '\sse7slif  V:l7T"'  *°  "''°'"  *""^  '*^'  ««<^  '°  fi™ 

^vecL  title?  r  f"""^'"«  P*"""  ^"  P~P«"y  =""1 

give  good  title?    Can  a  sole  surviving  partner  make  a  eener-,1 

assignment  without  consent  of  represenutives  ^dJJZT 


1 


PART  IX 
CORPORATIONS 


ill 


'!(■ 


CHAPTER  XLVIII 

NATURE  OF  CORPORATIONS* 

§304.    Corporate  Entity 

A  corporation  is  an  artificial  person,  created  or  authorized 
by  the  law  for  some  particular  purpose  or  purposes.  It  has, 
therefore,  only  those  rights  and  powers  which  are  given  it 
by  the  law.  These  vary  in  the  different  states  but  are  m  all 
cases  sufficient  for  the  demands  of  ordinary  business. 

A  corporation  is  usually  composed  of  a  number  of  persons 
associated  together,  though  it  may.  and  sometimes  does,  con-^ 
sist  of  but  one  or  two  members.    These  members,  or  stock- 
holders, are  not,  however,  the  corporation.    They  compose  it, 
but  the  corporation  has  a  name,  an  entity,  and  an  existence 
of  its  own,  entirely  apart  and  distinct  from  diat  of  these 
members.    Under  its  corporate  name  it  may  conduct  busmess. 
make  contracts,  and  bring  suit.    So  absolutely  different  is  the 
corporation's  existence  from  that  of  its  stockholders  that  it 
may^enter  into  contracts  with  these  latter,  may  sue  them,  or 
be  sued  by  them. 

305.    Classification 

A  logical  classification  is  that  which  separates  an  corpora- 
tions into :  ( I )  public  and  ( 2 )  private  corporations. 

Public  corporations  are  those  formed  by  the  community 
for  its  own  governmental  purposes,  as  in  cities,  villages,  and 
towns.    These  are  also  called  municipal  corporations. 

All  other  corporations  are  private  corporations. 

Corporations  formed  to  conduct  public  utilities,  such  as 

<S<e  Clupten  CVI  to  CVIII,  corporate  forna. 

377 


378 


CORPORATIONS 


NATURE  OF  CORPORATIONS 


379 


railroads,  turnpikes,  and  telegraph  systems,  or  to  supply  water 
gas,  and  electndty,  if  they  are  conducted  for  prSe  ^L' 
are  properly  clashed  nc  ,^«,ro*  privace  gam, 

times  cS  "ol?.  Kr  ^^^T^^^^'^n^-    They  are  some- 

«mes  caUed    quasi-public  corporations"  because  they  render 

«eTLT"  ;": '-.r"«^  to  the  public.  More  often  ^ 
are  termed   public  utility  corporations."  ^ 

A  moneyed  corporation  is  one  authorized  to  en^aw  in 
Ae  business  of  using  money  for  the  sake  of  making  f  Lfit 
upon  ,t  as  money,  such  as  banks,  mortgage  loan  or  tnist  ro™ 
pames,  insurance  companies,  etc.  ™' 

Corporations  may  also 'be  classed  as:  (i)  corooration,  / 
sole,  those  consisting  of  a  single  person;  and  (V)  ZZ^ZZ  ^ 
aggregate,  those  consisting  of  two  or  m;re  peLns^ 

wither"  .f.'T^'"^*'*'"^  ""^y  ^  divided  into  corporations 
without  capital  stock  and  corporations  with  capital  st^k 

§306.    Corporations  Without  Capital  Stock 

^.nH^"'*  Z*^'^''"''   "'"'^"'•'"*''  ^''anteble   (eleemosynary) 
a«d  social  organizations  belong  to  this  class.    They  arnl- 

stlSTeSt  "'  T"^  '"  *^'  ™""'^^^-  ''"t  **«e  are  not 
TJLT  ?  .^.  ^''  "°*  "^"^'y  transferable.  When 
corporate  action  ,s  taken,  each  member  has  one  vote  wi7hout 
regard  to  the  amount  of  his  financial  interests,  if  aLv  n  I 
corporation.  - '   "  "le 

^tJ!"^  "^^  °*  '"°*'*'"'  corporation  law  has  to  do  with  the 
stock  corporation 

1 307.    Corporations  With  Capital  Stock 

.,«.S'^/rr'**^°"'  ^'"'^  *  ^^P'*^'  ^'^'^'^  divided  into  shares 

cm£t:  o'f  stLr  T^''**  r  ^^•'^"«''  •'y  *--^"able 
memW  "f  1  ''''*  '*°'''  certificates  are  issued  to  the 

members  of  the  corporation,  who  are  termed  stockholders  the 
certificates  evidencing  the  number  of  shares  which  each  owns 


The  ultimate  control  of  die  corporation  rests  with  the 
stockholders,  who  act  in  meetings  and  by  vote.  Each  share 
of  stock  usually  entitles  its  owner  to  one  vote  in  stockholders 
meetings  hence  those  owning  a  majority  of  the  shares  con- 
trol the  corporation.  When  profits  are  to  be  divided,  they  are 
distributed  among  the  stockholders  in  proportion  to  the  num- 
ber of  shares  owned  by  each. 

On  account  of  the  convenience  of  the  system,  aU  corpora- 
tions intended  for  profit  are  organized  as  stock  corporations. 

§308.    Distinctive  Features 

The  distinctive  features  of  a  modem  stock  corporation 
may  be  summarized  as  follows: 

I.     Its  creation  and  regulation  by  the  state. 
2     The  limitation  of  the  corporate  powers  to  the  objects 
specified  at  the  time  of  its  creation,  or  later  by 

amendment.  ,,    ,.        t/ 

The  limitation  of  the  liabilities  of  the  stockholders. 
The  distinct  entity  of  the  corporation  for  all  legal  and 
"    business  purposes. 
The  comparative  permanence  of  its  organization. 
The  representation  of  the  interests  of  the  stockholders 
!     in  the  corporation  by  transferable  shares  of  stock. 
The  corporate  mechanism  of  directors,  officers,  and 
agents,  working  under  definite  rules  of  action. 
These  features  are  possessed  by  every  stock  corporation, 
and  every  organization  possessing  them  is  a  stock  corporation. 

§309.     (i)  Creation  by  the  State 

A  partnership  may  be  formed  by  the  mere  agreement  of 
the  parties.  A  corporation,  on  the  contrary,  may  be  created 
only  by  the  state.  Formerly  each  corporation  was  created  by 
a  separate  legislative  enactment.     Today  the  formation  of 


3- 
4- 

5- 
6. 

7- 


38o 


CORPORATIONS 


NATURE  OF  CORPORATIONS 


381 


'ii 


corpofations  is  governed  by  general  laws.  These  laws  vary 
in  minor  detaUs  in  the  different  states.  All  are  alike  in  their 
generd  plan  and  scope.  In  each  state,  the  legal  requisites  are 
to  be  found  in  the  state  law. 

§  310.    (3)  Limited  Powers  ^ 

th.t'*"  '"•'•r'"*'"^'  °l  >  partnership  may  engage  in  any  business 
that  seems  best,  and  may  change  from  one  business  to  another 
at  pleasure.  A  corporation,  on  the  contrar^^  is  limited  to  those 
purposes  enmnerated  in  its  charter.  If  it  is  desired  to  engage 
m  any  other  business,  it  must  amend  its  charter. 

§3"-    (3)  Limited  Liability  y 

Subscribers  to  the  stock  of  a  corporation  are  liable  to  the 
corporation  for  their  subscriptions.    Calls  for  payment  on  un-  ^ 
paid  stock  must  be  impartial  and  uniform,  that  is  to  say  calls 
must  be  made  on  aU  subscribers  alike.    If  the  subscriptions- 
have  not  been  paid,  the  corporation,  or  its  creditors  in  case 
Of  Its  insolvency,  can  compel  payment.    A  subscriber  cannot 
repudiate  h.s  subscription.    If  subscriptions  have  been  accepted  ' 
by  the  corporation  at  less  than  par,  corporate  creditors  can 
usually  force  payment  of  such  additional  amounts  as  win 
render  the  stock  fuU-paid.     (See  §353.) 

A  subscriber  to  stock  who  fails  to  make  his  payments  is 
chargeable  with  interest  from  the  time  he  makes  default  He 
must  pay  both  principal  and  accrued  interest  before  he  can 
claim  a  negotiable  certificate  of  stock.* 

A  subscriber  to  stock,  being  sued  for  payment,  and  claim- 
ing that  he  was  induced  to  subscribe  through  fraud    must  ' 
show  that  the  agent  was  duly  authorized  by  the  corporation 
fliat  his  statements  were  in  fact  of  the  condition  of  !he  cor- 
poration m  past  or  present  time  and  that  his  representations 
did  matenally  influence  the  subscriber  to  take  the  stock. 

•Cook  on  Corporationi,  ii* 


i 


Beyond  this  liability,  known  as  the  subscription  liability, 
stockholders  have  in  most  states  no  individual  liability  for  any 
indebtedness  of  the  corporation. 

§  31a.     (4)  Legal  Entity  of  Corporation 

The  distinct  legal  entity  of  the  corporation  may  best  be 
shown  by  a  comparison  between  corporations  and  partnerships. 

The  difference  is  radical.  .   ^.  .,     * 

A  partnership  is  merely  a  coUection  of  all  the  mdividual 
partners.  Hence  each  partner  represents  the  partnership  fully, 
can  make  contracts  for  it  without  consultation  with  other  part- 
ners, and  can  bind  it  by  his  action.  On  the  other  hand,  he 
cannot  contract  with  his  partnership,  bring  suit  agamst  it,  or 
be  sued  by  it,  any  more  than  he  could  so  act  with  or  agamst 
himself.    In  any  suit  by  or  against  a  partnership  each  partner 

must  be  named.  ^      ,      t        • 

A  corporation,  on  the  contrary,  is  itself  a  legal  entity, 
distinct  from  its  stockholders.  These  stockholders  as  indi- 
viduals do  not  represent  it,  cannot  make  contracts  for  it,  nor 
bind  it  in  any  way.  Each  may,  however,  deal  with  the  cor- 
poration as  with  a  stranger,  may  contract  with  it,  may  sue  it, 
may  be  sued  by  it.  A  corporation  sues  or  may  be  sued  by  its 
corporate  name  and  the  members*  or  stockholders'  names  do 
not  appear. 

§313-     (5)  Permanence 

A  partnership  may  be  dissolved  at  any  time,  at  the  will 
of  any  partner,  and  is  necessarily  dissolved  if  a  partner  dies, 
becomes  insolvent,  or  sells  out  to  a  stranger.  A  corporation, 
on  the  contrary,  continues  for  the  term  of  its  existence,  un- 
interrupted  by  the  dissatisfaction,  financial  embarrassment, 
death,  or  retirement  of  its  stockholders.  Its  entire  member- 
ship may  change  again  and  again,  but  the  corporation  con- 
tinues. 


382 


CORPORATIONS 


ff  I 


I 


r 


§314-     (6)  Stock  System 

The  division  of  the  stock  of  the  corporation  into  shares 
represented  by  stock  certificates,  transferee  by  indo^«nr 

pves  each  investor  his  proper  proportionate  interest  both  in 

It  permits  a  ready  sale  of  part  or  all  of  the  stockholder's  in 
terest  to  some  other  investor.    In  case  of  his  deaA  it  rend  « 
Ae  transfer  or  division  of  his  interest  a  simple  mat    r     ft  ' 

Z  T^7  ""'"'*  *°  *^  ''^'^'y  °f  transferring  a.  intere^ 
«i  an  ordinary  partnership.  ^       merest 

§  315.     (7)  Corporate  Mechanism 

th.  Ir'^J^!!""  "  "'^*"'  ^y  **^  ^^«"t  of  a  charter  from 
*e  state,  which  ,n  general  terms  defines  the  rights  and  pow^ 

of  the  corporauon.    After  this  charter  has  been  aUowS  S 

incorporators  hold  a  meeting  and  adopt  by-laws  whiS  llv 

down  the  lines  along  which  the  business  ol  the  corpltt  on 

.s  to  be  conducted.    The  stockholders  elect  a  board  of  dlTto^ 

^ontrols  and  manages  the  business  and  property  of  the  cort^S 
The  directors  at  their  first  meeting  elect  officers  and  take 

ume  10  time  as  may  be  reqmred  by  the  bv-IawQ  or  tuJ^^ 

ties  of  the  business.  ^         ^       '  ""^  ^^  "^^s«- 

§  316.    Attractiveness  to  Investors 

^ustof  STiS"  °'  f  ''''"*^^"  enumerated,  and  be- 
cause of  the  habdities  and  inconveniences  of  the  partnershio 
the  corporate  form  i«?  n<^itri*«i,.i.r  «**     x*  f<i' "icrsnip, 

Mv  *ic  lunn  is  peculiarly  attractive  to  the  investing 


NATURE  OF  CORPORATIONS 


3S3 


public.  Created  by  the  state  for  a  fixed  period,  it  is  not 
liable  to  sudden  or  unexpected  termination.  The  rights  and 
liabilities  of  all  concerned  are  defined  by  law  and  well  settled 
by  custom.  It  permits  investment  to  a  definite  extent  without 
indefinite  or  continuing  liability  and  without  the  necessity  of 
the  investor  becoming  identified  with  the  management. 

§317.    Disadvantages  of  the  Corporate  Form 

The  disadvantages  of  incorporation  result  from  the  fact 
that  special  reports  and  special  taxes  are  required  of  corpora- 
tions, above  those  required  of  sole  traders  or  partnerships. 
Most  states  require  reports  as  follows: 

1.  Local  tax  reports. 

2.  State  tax  reports. 

3.  Federal  tax  reports. 

4.  Annual  reports  of  officers,  etc. 

5.  Reports  in  each  state  outside  the  home  state  in  which 

tiiie  corporation  does  business, 

The  taxes  paid  by  corporations  at  various  times  are  as 
follows : 

1.  Organization  taxes  payable  to  the  state  for  incor- 

poration. 

2.  Annual  franchise  taxes  paid  to  the  state  under  the 

laws  of  which  it  was  incorporated. 

3.  Annual  taxes  on  property. 

4.  Federal  income  arid  excess  profits  taxes. 

5.  Inheritance  taxes  on  stock. 

6.  Stock-transfer  tax. 

7.  Taxes  and  license  fees  in  each  state  outside  the  home 

state  in  which  the  corporation  does  business. 

8.  Excise  taxes. 


384 


CORPORATIONS 

Review  Questions 


2. 


What  is  a  corporation?     Distiii«iish  a  rnrn««*-       t 
membership.  's"ng«isft  a  corporation  from  its 

Distinguish  between  public  and  private  coroorationc     uru  . 
public  utility  corporations?    WW     ^^'T^'^^*'^"^-    What  are 
corporation  f  '^'P^'^''^"^ '     ^^^'  «  *  moneyed  or  financial 

'*    "^^^srlf'^^^^^^^  To  which 

A     WW  f       '*"""  corporations  belong? 

t    wta    Tat""  1 ''"^'     ^^-t-- stock  certificates? 

wLusrc^of.:    r^"'^^"*     What  is  a  corporation  sole? 
wnat  is  a  corporation  aggregate? 

Xho:,;''  ""^  "'^"""'^^  ^^''^^  °^  »  -<>er„  stock  cor- 

o     i,ru      .  requisites  for  incorporation  ? 

«.     What  IS  the  difference  between  the  nnw*.re  r.f 

Why  is  a  corDo^^orr.nr  °^  ''°**  *  corporation  sue? 

How  can  an  i^-?  r  P^^^nent  than  a  partnership? 

2  .n?  ""/"•""'  '"  »  ™n>oration  be  transferred?    How  can 

13-    Explain  the  stock  system 

IS.    Why  .s  the  corporation  form  attractive  to  investors?    Whv  u 

re.  wS  srta^s-arh  t  r  ■--  •----  --Sl  ? 

uvtfuwges  attach  to  the  corporate  form? 


la 
II. 

12. 


CHAPTER  XLIX 

THE  CHARTER' 

§318.    Definition — Synonyms 

The  terms,  certificate  of  incorporation,  articles  of  associa- 
tion etc.,  are  synonymous  with  the  older  and  briefer  word, 
charter  A  charter  is  the  formal  authority  from  the  state  for 
the  existence  of  a  corporation.  It  is  to  the  corporation  what 
a  constitution  is  to  a  civil  government.  It  is  the  foundation 
upon  which  the  corporate  structure  is  built. 

The  charter  creates  the  corporation  and  authorizes  certain 
specified  individuals  to  organize  it  and  conduct  its  Operations. 
Charters  were  formerly  granted  only  by  special  legislative 
enactment.  Now  they  may  be  secured  under  general  laws  and 
in  many  states  can  be  secured  in  no  other  way. 

Charters  are  granted  under  diflferent  statutes  varying  in 
terms  and  requirements  according  to  the  purposes  of  the 
corporation.  The  simplest  charter  is  usually  that  provided 
for  a  manufacturing  or  mercantile  business.  The  require- 
ments  and  Umitations  for  the  charter  for  a  bank,  a  railroad,  a 
telegraph  company,  or  a  college  would  differ  widely. 

§  319.    Charter  Powers— General 

The  grant  of  a  charter  bestows  upon  a  corporation  all  the 
powers  properly  specified  in  the  application  for  a  charter.  In 
addition  to  these  specified  powers-which  are  usually  those 
necessary  to  conduct  the  business  or  enterprise  to  be  under- 
taken by  the  corporation-the  charter  confers  certain  general 

~S«,1»  Ctaptet  L.     For  fonn  of  chwt«,  «<  ChaptM  CVI.  Form  54- 


386 


CORPORATIONS 


THE  CHARTER 


387 


t 


Po.«i  whMh.,  sp^rf  „  <,a„™^  -n^ 

are  as  follows: 


I. 
2. 

3. 

4. 

5- 
6. 

7. 


To  sue  and  be  sued. 

To  use  a  seal. 

To  buy,  sell,  and  hold  property. 

To  appoint  directors,  officers,  and  agents. 

To  make  by-laws. 

To  dissolve  itself. 

To  do  all  things  necessary. 


These  are  discussed  in  order  in  the  following  sections: 
§  320.    (i)  To  Sue  and  Be  Sued 

..nJ^T  ^  partnership  is  sued  each  partner  must  be  named 
separately  and  be  made  a  party  to  the  action.    A  corporation 

Tn^A-J'^^^"^  "^^^^  '"^  ^^'^'•^^^  "^^  i^st  as  may 
an  mdividual.    No  mention  need  be  made  of  its  stockholders 
A  summons  may  be  served  on  any  managing  officer,  on  any 
director,  or  on  an  agent  in  charge  of  the  corporate  affairs. 

§32i.    (a)  To  Use  a  Seal 

«W  """' M*'  'f  """"  *'  ''''"^'^  ^^**"^^  Of  *«=  corporate 
signature.     Now  the  corporate  signature  may  be  affi^d  by 

any  properly  authorized  agent  without  the  use  of  the  seal  save 

in  those  cases  where  even  an  individual  must  use  a  seal.'as  in 

the  conveyance  of  real  estate  or  the  execution  of  a  bond. 

of  ^IZ^L^    ""  ""^^  '"'^  "•*  *^  --^^-^ 

S  aaa.    (3)  To  Buy,  Sell,  and  Hold  Proper^ 

This  power  must  be  taken  with  some  quaKfications     The 
property  must  be  such  as  pertains  to  the  business  of  the  cor! 
poration  and  such  as  it  is  permitted  to  hold  under  the  lawl 
In  some  states  the  ownership  of  land  by  corporations  is  re^ 


stricted.  Also  in  many  states  a  corporation  may  not  hold 
shares  of  stock  in  another  corporation.  A  corporation  must 
dispose  of  property  taken  for  debt,  if  it  has  no  charter  right 
to  hold  that  kind  of  property. 

§  383.  (4)  To  Appoint  Directors,  Officers,  and  Agents 
'  This  power  is  absolutely  necessary  as  the  corporation  can 
act  only  through  such  representatives.  The  stockholders  at 
their  annual  meeting  elect  directors  who  have  charge  of  and 
manage  the  corporate  affairs.  These  directors  then  meet  and 
elect  a  president,  a  treasurer,  a  secretary,  and  such  other 
officers  as  may  be  desired.  Agents  may  be  appointed  by  the 
directors  or  by  the  officers,  when  authorized  thereto. 

§  334.     (S)  To  Make  By-Laws 

The  by-laws  are  adopted  by  the  stockholders.  They  are 
the  working  rules  of  the  corporation  and  provide  for  the 
details  of  its  operation.  The  by-laws  are  subordmate  to  the 
laws  of  the  state  and  to  the  charter  of  the  corporation,  and 
their  provisions  must  not  be  inconsistent  with  either.  Under 
this  limitation,  however,  the  by-laws  have  wide  scope. 

§  335.     (6)  To  Dissolve  Itself 

When  a  corporation  has  failed  in  its  object,  or  has  become 
unprofitable,  or  has  completed  its  intended  purpose,  or  has 
disposed  of  its  business  and  property,  its  dissolution  may  be- 
come desirable.  Formerly  the  unanimous  consent  of  all  the 
stockholders  was  generally  required  for  dissolution.  Now 
in  most  states  some  specified  majority  of  the  stockholders 
by  simple  statutory  proceedings  may  dissolve  the  corporation. 
In  such  case  the  assets  are  sold,  and.  after  payment  of  any 
corporate  debts,  any  remaining  funds  are  divided  pro  rata 
among  the  stockholders. 


J 


SSB 


CORPORATIONS 


I 


§3*6.     (7)  To  Do  AU  Things  Necessary 

the  t  '°'^;f  *'°"  °'-S^'=^d  f«^  some  specified  purpose  has 
the  legal  nght  to  make  all  contracts  and  do  all  propeV  thini 
necessary  to  carry  out  that  purpose.    For  instance.  T  co^^ 

special  authonzation  thereto  have  the  right  to  buy  and  hold 
the  real  estate  required  for  the  erection  of  its  plant 

laa?.    Charter  Powers— Special 

The  special  powers  of  a  corporation  are  those  specifically 
m«,t.o„ed  m  jts  charter  which,  if  not  so  mentioned  it  would 

formed,  with  their  amplifications,  are  included  among  these 

.1 '"  T!  T"'  *'  ^^  ^'"'^^  ""^"y  ^"rther  powers  that 
add  much  to  the  value  of  the  corporate  system. 

Among  these  may  be  mentioned  provisions  as  to  the  issue 
JoZlf  «^'^-,^P--»  stocks,  the  system  of  cumulative 
voting,  the  power  to  hold  stock  of  other  corporations  etc 
A^so  restrictions  of  various  kinds  may  be  emLied  in  Z 
charter,  such  as  limitations  on  salaries  to  be  paid  officers  or 
res  nctions  on  the  power  to  mortgage  the  corporate  prop;rty 
or  to  contract  indebtedness  generaUy.  Property 

§3a8.    Things  Ultra  Vires 

An  individual  or  firm  may  do  anything  not  forbidden  by 
the  law.    A  corporation  may  do  only  those  things  expressly 
permitted  to  it  under  the  law.    All  other  things  are  S 
Its  powers,  or  in  legal  parlance,  ultra  vires.  Contracts  not  yet 
earned  out  by  the  other  party,  involving  matters  ultra  vires 
camiot  be  enforced  by  the  corporation;  but  if  these  other 
parties  to  a  contract  have  performed  their  part,  the  contract 
may  be  enforced  against  the  corporation-that  is,  a  corpora- 
taon  cannot  evade  its  obligations  by  the  plea  of  ultra  vires 
Directors  and  officers  may  make  themselves  personally  liable 


THE  CHARTER 


389 


either  to  the  corporation,  to  its  stockholders,  or  to  third  per- 
sons, if  they  involve  the  corporation  in  transactions  of  this 
nature. 

§  339.    Amendment  of  Charter 

Any  corporate  right  or  privilege  that  might  have  been 
secured  in  the  original  charter  of  a  corporation  may.  m  most 
of  the  states,  be  secured  by  charter  amendment,  and  such 
amendment  may  be  made  at  any  time,  even  before  the  organi- 
zation of  the  corporation  is  completed. 

As  a  preliminary  step,  amendments  of  the  charter  usually 
require  the  assent  of  at  least  two-thirds  of  the  outstanding 
stock  of  the  corporation  in  the  manner  prescribed  by  law- 
usually  by  vote  at  a  regularly  called  meeting  The  amend- 
ment so  authorized  is  then  as  a  rule  filed  in  the  same  offices 
and  with  the  same  formalities  as  the  original  charter,  becom- 
ing effective  as  soon  as  allowed  and  filed. 


Review  Questions 

,  What  is  the  basic  agreement  that  forms  a  corporation?  Who 
are  the  parties  to  it?    Give  different  kinds  of  charters. 

2.    What  are  the  usual  corporate  powers?     Give  examples. 

-,     What  are  special  charter  powers?  „       .. 

I  What  are  things  ultra  vires?  What  is  the  effect  tf  a  corpora- 
tion  exceeds  its  powers? 

5.  Distinguish  between  acts  of  directors  resulting  in  personal  ha- 

bility  and  such  as  are  merely  ultra  vires.  ^ 

6.  The  president  of  a  corporation  in  your  state  went  to  a  batik  in 

Chicago  and  requested  the  loan  on  his  note  of  $10,000  for 
his  personal  benefit.  The  bank  president  said  that  he  would 
make  the  loan  if  the  directors  of  the  borrower's  company 
would  authorize  the  borrower  to  indorse  it  in  the  name  of 
the  company.  They  did  so,  the  indorsement  was  made,  the 
bank  discounted  the  note,  and  paid  the  proceeds  to  the  maker. 
He  failed  to  pay  it:   proper  demand  was  made  and  notice 


I 


390 


CORPORATIONS 


of  non-payment  given.     Is  the  inHor«n,-«.  k-  j- 
coniDanir;    r;„.  ,  "naorsement  bindine  on  the 

7     W^T^I  '  '**^'"  **"  y""'  answer. 

7-     What  IS  the  procedure  for  amending  a  charter  in  vo„r  ««  > 

a    If  a  corporation  to  secure  a  debt  tc^k  pX^l^VTl 

d«i  not  authorize  it  to  hold,  what  shoulKv^   "*  ""'"'' 
9.    If  sort  were  brought  airainst  a  r„r. ,.• 

the  papers  be  served  f  «'''«"''°».  "!«»  whom  would 

^ofB^S  '•''  '"~'°"  "•"•-^     Who  choose  the  executive 

»     JfTcor^lT'  ~"^^  "P*""'  «  ♦«'»S~Ph  ''ne  ? 

1-*.    II  a  corporation  issues  stock  in  exces«s  nf  ;♦-  -  *i.    •      . 

the  excess  stack  valid?  authorization,  is 


10, 


CHAPTER  L 


INCORPORATION^ 

§330.    Application  for  Incorporation 

In  former  days  a  grant  of  a  special  charter  would  be  made 
to  specified  persons,  authorizing  them  to  conduct  some  particu- 
lar enterprise  under  the  corporate  form.  Usually  these 
charters  conferred  some  franchise  or  special  privilege,  as  the 
right  to  erect  a  toll  bridge,  establish  a  bank,  construct  a  rail- 
road, or  build  a  dam. 

The  abuses  arising  from  this  method  of  granting  charters 
have  resulted  in  most  states  in  the  establishment  of  general 
laws  under  which  corporations  may  be  formed  for  any  legiti- 
mate purposes,  by  any  qualified  persons  upon  compliance  with 
prescribed  formalities.  In  some  few  states  special  charters  are 
still  granted  on  occasion. 

The  form  of  application  for  a  charter  under  these  general 
laws  is  usually  merely  a  copy  of  the  charter  desired. 

It  may  be  called  a  "certificate  of  incorporation,"  "articles 
of  association,"  or  other  similar  name.  It  sets  forth  the  names 
of  the  applicants  and  the  name,  purposes,  and  other  required 
details  of  the  projected  corporation.  It  usually  also  includes 
the  proposed  capital,  the  par  value  of  the  shares,  the  principal 
office  of  the  corporation,  its  duration,  the  number  and  names 
of  its  first  directors,  the  subscribers  to  its  stock  and  any 
special  provisions  that  are  desired.  The  charter  application 
when  allowed  becomes  itself  the  charter. 

It  is  executed  by  the  ncorporators,  and,  after  its  allowance 
by  the  Secretary  of  State,  is  filed  in  his  office.    It  must  also 

»  For  incorporation  forms,  sec  Chapter  CVI,  Forms  53.  57- 


I 


39* 


CORPORATIONS 


usually  be  filed  in  the  office  of  the  clerk  of  the  county  in  which 
the  corporation  is  domiciled  or  has  its  home.  If  the  proposed 
corporation  is  for  proper  purposes,  if  all  fees  have  been  paid, 
and  the  appUcation  is  in  due  form,  it  is  accepted  and  filed  as 
a  matter  of  course  and  the  incorporation  is  accomplished. 

The  details  of  incorporation  as  given  are  the  simple  forms 
used  for  ordinary  business  corporations.  The  formalities  and 
requirements  for  organizing  a  public  utility  corporation  arc 
more  complex  and  more  onerous. 

§  331*    Incorporators 

The  parties  applying  for  a  charter  must  be  competent 
persons  of  full  age,  and  ordinarUy  some  proportion  of  them 
must  be  citizens  of  the  state  in  which  the  application  for 
charter  is  filed.  Minors,  firms,  or  corporations,  and  generally 
persons  not  able  to  contract,  are  not  competent  parties,  though 
they  may  usuaUy  hold  stock  after  the  corporation  is  formed. 
Persons  acting  in  a  representative  capacity  cannot  act  as  such 
in  incoiporating  a  company.  The  minimum  number  of  ap- 
plicants is  in  most  states  three,  though  in  some  few  states 
five  are  required.  Each  incorporator  must  ordinarily  subscribe 
for  one  or  more  shares  of  stock  and  all  must  sign  and 
acknowledge  the  application. 

i$$2.    Name  of  Corporatioii 

Names  like,  or  nearly  like,  those  of  corporations  already 
rig^tfuUy  doing  business  in  the  particular  state  may  not  be 
selected  as  the  corporate  name.  In  some  states  all  corporate 
names  must  begin  with  "The**  and  end  with  "Company.'*  In 
others  the  name  must  be  followed  by  "Limited"  or  "Incor- 
porated." In  many  states,  firms  may  become  incorporated 
under  the  partnership  name  without  change  or  addition  of 
any  kind. 


INCORPORATION 


393 


§  333.    Purposes 

The  purposes  for  which  a  corporation  is  to  be  formed  must 
be  set  forth  in  the  application.  They  must  be  permitted  by 
the  laws  of  the  particular  state.  Ordinary  business  corpora- 
tions are  allowed  much  latitude  in  stating  their  purposes  and 
are  not  usually  confined  to  one  business  or  line  of  activity. 
(  See  Chapter  LI. ) 

§  334-    CapiUlization 

The  capital  stock  of  the  proposed  corporation  must  be 
specified  in  the  application  and  may  be  changed  thereafter 
only  by  amendment  of  the  charter.    (See  §  349-) 

§  335-    Shares 

In  most  states  of  the  Union  the  par  value  of  shares  of  stock 
may  be  fixed  by  the  incorporators  at  discretion.  In  some  few 
states  there  are  general  restrictions,  as  in  New  York  where 
the  par  value  of  the  share  must  be  not  less  than  $5  nor  more 
than  $100.  In  New  York  and  some  other  states  shares  may 
also  be  issued  without  any  par  value.    • 

One  hundred  dollars  is  the  most  convenient  and  most 
generally  adopted  par  value  for  shares  of  stock.    (See  §  349) 

§  336.    Location  . 

A  corporation  must  have  its  principal  office  in  the  state  V 
in  which  it  is  incorporated.     The  location  must  usually  be 
specified  in  the  application  for  its  charter. 

In  the  state  of  its  incorporation  the  company  is  a  "domes- 
tic" corporation.  Elsewhere  it  is  a  "foreign"  corporation.  In 
its  own  state  it  has  certain  legal  rights  as  an  incident  of  mcor- 
poration.  In  other  states  it  has  no  such  rights  except  as  a 
matter  of  courtesy  or  as  may  be  granted  there  by  legislation. 


I 


^^  CORPORATIONS 

§337-    Buratioii 

In  s^e  states  the  duration  of  corporations  is  limited  to 
«^e  fixed  maximum  as  twenty,  thirty,  or  fifty  years.  In 
Zte™?  ''°:!7' -'>««^  -  -"Toration  may  ^limited  to 
Sr^f^l''^ '^^  ^-"-*  ^«  P^-'-'^-o  make  its 

§  338-    Number  of  Directors 

The  number  of  directors  of  the  corporation  must  in  most      / 

aUowed  by  law  is  usuaUy  three.    (See  §371.)  ™™™"" 

§  339'    Classification  of  Stock 

Under  die  laws  of  most  of  the  states,  stock  may  be  classi- 
^1  ""T  T'\    '^'  ™^*°'"^'^  classification  is  into 

sTt"  r  r  '"?  '"^    ^"°*'^^  ''^^^-'  classification 
1«L    ""T^  '^  non-voting  stock.    Sometimes  stock  is 

^^^  UseT  ^^ "' '"'  '^^'^  °"^  °'  "-^  ^-- 

§340.    Cumulative  Voting 

§  341-    Execution  of  Certificate 

forJ^  "^Tl  T"'^**^"'  ''''^•"e  been  duly  made  out  in  con- 
Su'^iTdlr ' .  "k  °1*'  ^^*^  °'  incorporation,  is  sig^eS. 
ri  L^      ^       ''  ^  *'  'n<=OT>orators.    It  is  then  acknowl 

"C  td  r;e\t^7«tr^  ^^  ^^  acknowledgments 

§343.    Filing  and  Recording 

Under  the  usual  procedure,  the  duly  executed  application 
accompanied  by  the  proper  fees,  is  sent  to  the  oflS  o7Ae' 


IKCORPORATION 


395 


Secretary  of  State,  while  another  copy  is  filed  with  the  county 
clerk  of  the  county  in  which  the  proposed  corporation  is  to 
have  its  principal  office.  Each  state  has  its  own  minor  varia- 
tions in  procedure,  which  will  be  found  in  its  statute  law. 

In  New  York  the  state  fees  must  be  sent  to  the  State 
Treasurer.  When  these  fees  are  received,  the  Treasurer  certi- 
fies that  fact  to  the  Secretary  of  State,  who  wiU  not  file  the 
charter  until  this  certification  is  received.  In  New  Jersey  the 
application  is  filed  with  the  county  clerk  first,  and  a  copy 
certified  by  him  is  then  filed  with  the  Secretary  of  State.  In 
some  states,  the  application  must  receive  the  approval  of  the 
judge  of  a  specified  court  before  it  will  be  filed. 

If  the  application  for  charter  is  in  due  shape  and  all  fees 
are  paid,  it  is  accepted  and  filed  as  a  matter  of  course.  The 
application  becomes,  when  filed,  the  charter  of  the  corporation. 
The  existence  of  the  corporation  dates  from  such  filing. 

As  the  procedure  for  incorporation  varies  in  each  state, 
it  is  best  to  study  the  statutes  and  the  forms  prescribed  in 
the  reader's  own  state.  In  most  states  these  statutes  are 
published  in  a  pamphlet  and  the  blank  forms  are  usually  sent 
out  on  application  to  tiie  Secretary  of  State. 

§343.    De  Facto  Corporation 

Sometimes  an  attempted  incorporation  may  fail  and  then 
a  question  may  arise  as  to  the  liability  of  the  members.  The 
elements  of  a  de  facto  corporation  are: 

1.  A  general  law  under  which  the  corporation  could  be 

legally  formed. 

2.  A  bona  fide  attempt  to  comply  with  the  provisions 

of  that  law. 

3.  The  exercise  of  corporate  powers. 

When  these  elements  exist  the  liability  of  members  will 
be  the  same  as  if  the  incorporation  had  not  been  defective. 


i 


396 


CORPORATIONS 


me  doctrine  of  rfe  facto  corporations  is  not  recognized.   ^ 

§344.    Contracts  Prior  to  Incorporation 

When  contracts  are  enfprpH  ;.,f«  • 
formation  nf  o  entered  into  in  expectation  of  the 

poration.  drpTds  l^^Z' '/ *'  'T"*"""  '^"^  °^  '"•=*'^- 
tract      A  C..K  '^  "^'"'■^  ^"'^  condition  of  the  con- 

tract.   A  subscription  to  stock  wm.M  k    *       •         . 

l»y»««t  had  l«o,  made  lh.Z.  M^l^  '"""»■«'.  md  H 
Other  contracts,  if  clearly  made  on  behalf  nf  A. 

tion.     The  promoters  usually  control  the  first  mZ"    ^  i 


INCORPORATION 


397 


I. 


Review  Questions 


manufacturing  o^rZ"       "'^""'*'°"    '"'  "•"'-  °*  " 

3.    Where  mus7the  prinj^'^!*^      /"  ■"'=°n«^«'on  ? 

it  fixed?  ''"""P^  °«^«  °f  «  corporation  be?    How  is 

4-    How  may  stock  be  classified? 


5.  How  is  the  application  for  a  charter  executed?     Where  is  it 

filed  in  your  state? 

6.  What  is  a  de  facto  corporation? 

7.  How  many  incorporators  are  required  in  your  state  to  organize 

a  business  or  a  manufacturing  corporation? 

8.  Why  are  shares  without  par  value  desired? 

9.  The  promoters  of  a  company  before  its  incorporation  employ 

an  accountant  to  prepare  the  prospectus,  which  the  company 
makes  use  of.     May  he  recover  for  his  services  against  the 

company  ? 

When  persons  associate  themselves  together  as  a  corporation 
and  the  corporation  is  defective  or  incomplete,  what  is  their 
position  as  against  the  creditors  of  the  corporation? 

What  is  the  distinction  between  foreign  and  domestic  corpora- 
tions ? 


IQ 


II. 


CHAPTER  LI 

BY-LAWS* 
§345-    Definition 

By-laws  are  the  more  permanent  rules  of  corporate  action 
as  distinguished  from  motions  and  resolutions,  which  usually 
apply  only  to  particular  occasions  and  special  matters 

A  corporation  is  controlled:  (i)  by  the  corporation  laws 

t  ^ZT     ".^  f  J'  J'  ''°"''*=''^^'  ^")  ^y  *^  provisions  of  j 
rts  charter,  and  (3)  by  its  by-laws,  these  three  ranking  in  the' 

l^ZrZ  t  '°  '"*°"'^-  ^"'^  *"y  ^y-'^*  *^t  does  not 
accord  wiA  the  statutes  of  the  state  and  also  with  the  provi- 
sions of  the  charter  of  the  particular  corporation  is  void 

„„!«  r'f?  ""^f  "IkLOl^stockholdersand  by  them  alone, 
feiSiS^.  by  cnarter  provision,  or  by  action  of  the 
stockholders  tfieniselves,  such  power  has  been  dele       ' 


far^  in  part  to  the  dirertor.  »f  ..,,  -^T^ntiog 

will  n'^o^h?  ff™?^  *''^^"  °^  ^'^"^^  *°  "^'  "'"t^Cts 
wdl  not  be  effective  against  one  who  contracts  with  the  cor- 
poration without  knowledge  of  those  by-laws.    The  officers 
tho.^,  would  make  themselves  liable  to  the  corporation  for 
any  damage  resulting  from  their  breach  of  duty. 

S  346>    Adoption 

A  corporation  is  not  compefled  to  adopt  by-laws      Its 

A  reasonably  complete  set  of  by-laws  is  usuaDy  adopted 
by  the  stockholders  at  their  first  meeting,  and  thei  by-laws 

*F.r  f.n>  of  l».|„fc  Ke  CK««er  CVI.  Fom  55. 


BY-LAWS 


399 


y 


are  added  to,  amended,  or  repealed  from  time  to  time  there- 
after as  may  be  necessary. 

By-laws  should  be  carefully  drawn,  properly  adopted,  and 
accurately  recorded  in  the  minute  book  of  the  corporation. 
They  should  provide  fully  for  all  the  important  details  of 
corporate  procedure,  such  as  the  issuance  and  transfer  of 
stock,  the  meetings  of  the  stockholders  and  directors,  the 
election  of  directors  and  officers,  the  respective  duties  and 
responsibilities  devolving  upon  these,  and  the  care  and  manage- 
ment of  the  corporate  property  and  finance.  They  should  also 
include  the  more  important  provisions  of  the  charter  and  of 
the  statute  law  as  far  as  applicable.  This  is  done  in  order  to 
provide  a  convenient  and  accessible  memorandum  of  these 
provisions.  Without  this  they  might  be  overlooked  or  for- 
gotten. 

§  347.    Amendment 

The  by-laws  usually  prescribe  the  method  of  their  own 
repeal  or  amendment.  Unless  otherwise  provided  by  statute, 
charter,  or  by  proper  provision  in  the  by-laws  themselves,  these 
by-laws  may  always  be  repealed  or  amended,  either  in  whole 
or  in  part,  by  a  vQ?}'^'''^y  ^^^^^  ^^  "^  gnnrnTn  nf  stnrkhnlHars  at 
any  rrpihr  m-'-^-'-f ,  n*-  ^^  ^"y  T^'^if^l  meeting  duly  called  for 
thaTpurpose.  The  directors  have  no  power  to  repeal  or  amend 
by-laws  under  any  circiunstances  unless  such  power  is  ex- 
pressly given  them  by  the  laws  of  the  state  of  incorporation, 
by  the  charter  of  the  corporation,  or  by  its  by-laws. 

§  348.    Enforcement 

Direct  penalties  for  the  violation  or  non-observance  of 
by-laws  are  sometimes  provided.  These  usually  take  the  form 
of  fines.  Such  penalties  are,  as  a  rule,  unsatisfactory  and  very 
difficult  of  enforcement.  The  smaller  infractions  are  usually 
passed  over,  or  recurrence  is  prevented  by  the  substitution  of 


y 


400 


CORPORATIONS 


more  reliable  officials  at  the  next  election.  The  more  serious 
violations  bring  their  own  penalties  in  the  legal  liabilities  and 
entanglements  that  necessarily  follow.  Corporate  action  taken 
in  disregard  of  by-law  provisions  is,  for  that  reason,  not  only 
illegal  but  may  at  times  involve  the  directors  and  officers  con- 
cerned in  personal  liabilities. 


Review  Questions 

What  are  by-laws?  How  do  by-laws  rank  as  compared  with 
other  corporate  regulations?  Arc  by-laws  binding  on  people 
who  do  business  with  corporations?    Give  reasons  for  answer. 

Who  adopt  or  amend  by-laws  in  your  state?  If  a  corporation 
adopted  a  set  of  by-laws  which  provided  that  any  amendment 
required  a  two-thirds  vote,  would  a  subsequent  amendment 
by  a  majority  be  good?    Give  reason  for  answer. 

How  are  by-laws  enforced? 


CHAPTER  LII 


STOCK^ 


§349.     Capital  Stock 

The  capitalization  or  capital  stock  of  a  corporation  is  the  |  ^ 
amount  of  stock  as  fixed  by  its  charter  which  the  corporation  I 
is  empowered  to  issue.  This  amount  can  be  changed  only 
by  amendment  of  the  charter.  This  capital  stock  is  regarded 
as  divided  into  equal  shares,  termed  "shares  of  stock."  When 
by  purchase  or  otherwise  a  person  acquires  an  interest  in  the 
capital  stock,  he  becomes  a  stockholder  in  the  corporation,  and 
his  interest  is  expressed  in  these  shares  of  stock. 

The  par  or  face  value  of  shares  of  stock  is  fixed  by  the 
charter  of  the  particular  corporation,  and,  unless  expressly 
limited  by  statute,  may  be  placed  at  any  amount  desired  by  the 
incorporators.  This  par  value  can  be  changed  only  by  charter 
amendment.  One  hundred  dollars  is  the  most  common  par 
value  of  shares.  The  number  of  shares  owned  by  any  in- 
dividual gives  an  accurate  measure  of  his  interest  in  the 
corporation.  For  instance,  if  a  man  ow^ns  ten  shares  of  the 
par  value  of  $100  each  in  a  corporation  with  a  capitalization 
of  $10,000,  all  of  which  is  issued,  he  owns  a  total  stock  in- 
terest of  one-tenth  of  the  entire  outstanding  capital  stock,  and 
therefore  has  an  undivided  one-tenth  interest  in  the  entire  / 
corporate  property  and  business. 

The  par  value  and  the  actual  value  of  a  share  of  stock 
may  be  very  different.  A  hundred-dollar  share  of  stock  in  a 
prosperous  corporation  will  frequently  be  worth  several  times 


»  For  form  of  subscription  list,  stock  certificate,  and  assignment  of  stock  certificate, 
sec  Chapter  CVI,  Forms  53,  S7- 

401 


402 


CORPORATIONS 


I 


§350-    Stock  Certificates 

th.  !!r?».'u  "^f ''''  ^'■'  '''"'''  ^'  ^  convenient  evidence  of 
Ae  stockholders'  interests  in  a  corporation,  and  every  stock- 
holder whose  stock  is  paid  for  has  a  right  to  such  a  certificate. 
TT^ese  certificates  state  the  number  of  shares  owned,  their  par 
value,  and  usually  any  other  material  facts  affecting  the  stock 
.n  question,  as.  for  instance,  that  it  is  full-paid,  or  that  it  is 
preferred  stock.  These  certificates  of  stock  are  signed  by  the 
pres.dent  and  the  secretary,  or  the  president  and  the  treJurer 

When  properly  issued,  they  are  conclusive  evidence  of  the 
ownership  of  the  stock  represented  by  them. 

The  stock  certificate,  as  already  stated,  is  merely  the  evi- 
dence of  ownership  of  stock  and  is  not  the  stock  itself.  The 
stock  of  a  corporation  usually  exists  before  stock  certificates 
are  issued  at  al .  and  may  be  bought  and  sold  by  proper  entries 
on  the  corporate  books. 

rata  before  ,t  may  be  offered  to  outside  investors.  However 
a  pnce  may  be  fixed,  not  less  than  par,  and  if  the  stockholders 
tZTl  "^  ?^f^!'^'y  to  take  stock  at  that  price  in  propor- 
tion to  their  holdmgs,  and  the  offer  is  not  accepted,  the  right 
IS  lost,  and  the  stock  may  be  sold  to  others,  at  the  advanced 
pnce.  In  some  cases  subscription  scrip  that  can  be  sold  to 
others  IS  issued  to  stockholders  in  proportion  to  their  holdings 
Each  share  of  stock  usually  entitles  the  owner  of  record 
to  one  vote  in  all  proceedings  of  the  stockholders,  whether  as- 
sembled  in  annual  or  special  meeting.  In  most  states  bv 
proper  charter  provision  the  voting  power  of  stock  mav  be 
restncted,  or  stock  may  be  issued  without  voting  power    Pre- 


STOCK 


403 


ferred  stock  is  very  frequently  so  issued.  Unless  expressly 
denied  or  restricted  hv  proper  provision,  all  stock  has  the  usjial 
votinpf  power  and  this  right  may  be  exercised  bv  the  ow 

record  in  nerson    nr    itciially    hy  prr|^y 

§  35X.    Capital  Stock  vs.  Capital 

The   "capital   stock"  or   capitalization  of   a   corporation 
should  be  very  clearly  distinguished  from  its  "capital." 

The  capital  stock  is  the  total  amount  of  stock  the  corpora-! 


tion  is  authorizedoy  its  charter  to  issue.  This  amount  is  fixed 
in  the  first  place  by  the  parties  organizing  the  corporation — 
who  are  termed  the  incorporators — and,  once  accepted  and 
authorized  by  the  state,  may  be  changed  only  by  formal  amend- 
ment of  the  charter. 

The  capital,  on  the  other  hand,  is  the  net  actual  amount  of 
property  owned  by  the  corporation,  that  is,  the  excess  of  its 
assets  over  its  liabilities.  It  is  obvious  that  the  value  of  these 
assets  is  liable  to  change  with  the  fluctuations  of  the  business  or 
from  other  causes.  The  capital  stock  of  the  corporation  and  its 
capital,  therefore,  even  though  equal  at  first,  may  and  fre- 
quently do  differ  greatly  in  amount.  For  instance,  the  capital 
stock  of  the  Chemical  Bank  of  New  York  City  is  $3,000,000 
while  its  capital  is  over  $7,500,000. 

§352.    Unissued  and  Issued  Stock 

Unissued  stock  is  not  an  asset  of  the  company  but  is  merely 
an  unexercised  right  to  issue  stock  when  and  as  subscriptions 
for  it  are  accepted. 

It  usually  represents  excess  capitalization.  For  instance,  a 
corpOTStton  organized  to  take  over  property  worth  $20,000 
might  perhaps  be  capitalized  at  $25,000  with  the  idea  of  selling 
the  excess  stock  at  some  future  time  to  raise  working  capital. 

Issued  and  outstanding  stock  is  stock  which  has  been  issued 
for  cash,  property,  labor,  services,  or  other  values,  or  which 


I 


W 


404 


CORPORATIONS 


has  been  subscribed  for  and  the  subscriptions  accepted  by  the 
company.  Such  stock  is  issued  stock  and  the  subscribers  or 
purchasers  are  stockholders  of  the  company,  even  though  the 
actual  certificates  by  which  this  stock  is  represented  may  not 
have  been  issued. 

Section  55  of  the  Stock  Corporation  Law  in  New  York 
State  provides  that: 


No  corporation  shall  issue  cither  stock  or  bonds  except 
for  money,  labor  done,  or  property  actually  received  for  the 
use  and  lawful  purposes  of  such  corporation. 


S353.    Full-P; 


In  most  of  the  states,  payment  for  stock  may  be  made  in 
anything  of  value.  If  the  corporation  has  received  the  full 
face  value  for  issued  stock  in  cash  or  in  any  other  form  of 
payment  permitted  by  law,  such  stock  is  termed  full-paid, 
and  its  certificates  should  be  marked  "Full-Paid'*  in  order  to 
indicate  this  fact.  After  stock  has  once  been  issued  for  full  I 
value,  it  may  be  sold  at  less  than  par  without  involving  the  \ 
purchaser  in  any  liability  for  the  difference. 

If  the  corporation  has  not  received  the  full  face  value  for 
issued  stock,  the  stock  is  but  partly  paid,  and  the  immediate 
purchaser  of,  or  subscriber  to,  such  stock  may  usually  be  held 
liable  for  the  amount  necessary  to  render  it  full-paid.    This  I       / 
liability  may  be  enforced  either  by  the  corporation,  or,  in  event  l    ^ 
of  its  insolvency,  by  any  creditor  of  the  corporation 

Stock  certificates  issued  as  full-paid  when  they  are  not 
full-paid  will  not  protect  stockholders,  who  knowingly  sub- 
scribe for  or  buy  such  stock,  from  liability  to  creditors  in 
case  of  insolvency.  But  an  innocent  purchaser  for  value  who 
buys  in  the  open  market  is  not  liable  either  to  the  corporation 
or  its  creditors. 

Watered  stock  is  stock  for  which  the  corporation  has  not 


• 


STOCK 


405 


received  full  payment  in  cash,  services,  or  property,  ^^ater^ 
j;tnrk  i<;  usually  created  hv  the  issuance  of  stock  in  payment  for 
property  or  services  which  have  been  overvalued;  sometimes 
also  it  is  created  by  the  issue  of  stock  insufficiently  supported 
by  the  corporate  property,  as  for  instance,  in  cases  of  unwar- 
ranted stock  dividends. 

§  354.    No  Par  Value  Stock 

In  some  states,  as  in  New  York,  stock  may  be  issued  having 
no  par  value.  Its  value  is  the  market  rate.  Here  the  stock  is 
full-paid  when  it  is  sold  at  whatever  can  be  obtained  for  it  in 
the  market,  and  there  is  no  further  liability. 

§355.    Common  Stock 

£!ommnn  stock  is  the  general  or  ordinary  stock  of  a  cor- 
poration, with  neither  special  privileges  nor  restrictions.  If 
any  portion  of  the  stock  is  given  iipecial  piivileges  ur'iestric- 
tions,  that  portion  is  thereby  removed  from  the  class  of  com- 
mon stock  and  the  remainder  constitutes  common  stock.  Any 
statements  made  concerning  stock,  when  the  class  is  not  speci- 
fied, are  usually  understood  to  apply  to  the  common  stock. 

Non-participating  stock  is  stock  sharing  in  ;^11  dividends 
but  giving  the  owner  no  voting  j^ight. 


^ 


§356.    Preferred  Stock 

Preferred  stock,  as  the  term  is  usually  employed,  is  that 
which  has  some  preference  as  to  dividends  or  assets  over  other 
stock  of  the  same  corporation!  This  preference  is  usually 
secured  to  it  by  special  provisions  in  the  certificate  of  incor- 
poration, though  in  some  states  this  may  be  attained  by  by-law 
provision. 

Preferred  stock  may  be  either  cumulative  or  non-cumu- 
lative as  to  dividends.     Non-cumulative  preterred  stock  must 


4o6 


CORPORATIONS 


receive  its  preferred  dividend  for  the  current  year  before  any 
dividend  is  paid  the  common  stock,  but  if  in  any  year  its 
dividend  fails  or  is  only  partly  paid  it  loses  the  unpaid  amount. 
If  the  dividends  on  cumulative  preferred  stock  are  not  paid 
in  any  year,  or  years,  or  are  but  partially  paid,  the  amounts 
unpaid  go  over,  or  cumulate,  and  must  be  satisfied  before 
the  common  stock  receives  anything.  They  remain  a  charge 
against  the  profits  of  the  company  until  paid  in  full. 

It  is  usually  provided  that  preferred  dividends  shall  be  paid 
in  fudSeyc^l  I!  lliL  Luiuiuuu  ^ibilk  lec^eiygsany^vidend.  Unless 
otherwise  expressly  providecl,  after  the  preferred  dividends  are 
paid  in  any  year,  the  common  stock  receives  an  equal  dividend 
if  the  profits  are  suflScient,  and  both  kinds  of  stock  then  share 
alike  in  any  further  dividends  declared  in  that  year.  It  is 
sometimes  provided  that,  after  the  preference  dividends  are 
paid,  the  preferred  stock  shall  share  equally  in  all  further 
profits  with  the  common  stock.  Preferred  stock  is  sometimes 
limited  to  its  preferred  dividend  and  does  not  participate  atl 
all  in  any  further  dividends. 

It  is  often  provided  that  in  case  of  dissolution  preferred 
stock  shall  be  satisfied  out  of  any  assets  of  the  company  before 
the  common  stock  receives  anything.  li  this  provision  is  not 
made,  either  by  statute  or  by  charter,  the  preferred  stock  m 
^ary  liquidation  of  the  corporation  will  first  receive  any  divi- 

"^^^1^  t^n  ^"^    ^"^  therpafter  will   far^  ^ho  oarn^  ac  ;?^mmr^» 

-StQQk. 

Preferred  dividends  may  be  paid  only  from  nrnfitg     If 


there  are  no  profits,  Of  if  the  prohts  are  needed  for  purposes 
of  the  business,  the  dividends  to  preferred  stock  are  either 
passed  entirely  or  cumulated  until  profits  are  made.  Unlike 
a  bond,  preferred  stock  is  not  a  debt  or  liability  of  the  cor- 
poration. Its  owners  are  stockholders  and  not  creditors,  and 
failure  of  dividends  gives  no  cause  of  action  against  the  com- 
pany or  its  directors. 


1/ 


I 


v^ 


STOCK 


407 


§357-    Treasury  Stock 

Treasury  stock,  in  the  better  use  of  the  term,  is  stock  which 
has  been  issued  for  value  and  has  by  gift  or  purchase  come 
back  into  the  possession  of  the  company.  It  differs  from  un- 
issued  stock  in  the  fact  that  it  may  be  sold  below  par  without 


\\ 


^ 


involving  the  purchaser  in  any  liability  tor  the  uiipard"tela 
So  long  as  the  treasury  stock  is  held  bv  the  company,  it  can 
neither  vote  nor  draw  dividends. 


§  358.    Lost  Certificates 

A  stockholder's  rights  are  not  affected  by  the  loss  or  de- 
struction of  his  stock  certificate.  Its  absence  may  involve 
much  inconvenience,  more  particularly  if  the  stock  is  to  be 
sold.  The  directors  may,  in  their  discretion,  provide  for  the 
issue  of  a  duplicate  subject  to  the  by-laws,  which  usually 
provide  that  a  bond  must  be  required. 

If  a  certificate  is  lost  the  secretary  of  the  company  should 
be  notified  promptly,  as  otherwise  the  stock  certificate  might 
be  presented  under  circumstances  which  would  justify  him  in 
making  any  desired  transfer.  After  notification  he  would 
make  such  a  transfer  only  by  direction  of  the  board. 

§359.    How  Transferred 

Stock  certificates  usually  have  a  blank  form  of  transfer 
printed  on  the  back.  If  this  is  simply  signed,  the  stock  may 
be  transferred  to  anyone,  and  he  will  have  a  right  to  obtain  a 
certificate  made  out  to  himself  by  surrendering  the  indorsed 
certificate  to  the  corporation.  If  the  name  of  the  person  to 
whom  it  is  transferred  is  inserted,  only  that  person  has  a  right 
to  the  stock  and  to  the  new  certificate. 

A  Uniform  Stock  Transfer  Act  is  now  in  force  in  four- 
teen states  and  territories  and  governs  the  method  of  trans- 
ferring stock  and  the  rights  of  transferee  and  transferor. 
The  states  which  have  accepted  this  act  are: 


\/ 


4oS 


CORPORATIONS 

Connecticut 

Illinois 

Louisiana 

Maryland 

Massachusetts 

Michigan 

New  Jersey 

and  the  territory  of  Alaska 


New  York 

Ohio 

Pennsylvania 

Rhode  Island 

Tennessee 

Wisconsin 


Review  Questions 


1. 


a. 


What  determines  the  amount  of  stock  a  corporation  may  issue? 

What  is  the  par  value  of  stock?    What  is  the  actual  value? 

What  fixes  the  actual  value? 
What  is  a  stock  certificate?    If  a  "close"  corporation,  that  is, 

a  corporation  with  a  small  harmonious  group  of  stockholders, 

decided  not  to  issue  certificates,  what  would  be  the  efifect  ? 

3.  When  the  capital  of  a  corporation  is  increased,  what  persons 

have  a  prior  right  to  subscribe  for  the  new  stock,  and  in  what 
proportions?  May  such  right  be  made  negotiable,  and  if  so, 
how? 

4.  What  is  the  diflference  between  the   "capital  stock"  and  the 

"capital"  of  a  corporation? 

5.  For  what  kinds  of  property  may  a  corporation  under  the  laws 

of  your  state  issue  its  capital  stock  in  payment?  Explain 
fully.  How  are  directors  liable  if  they  allow  subscribers  to 
stock  to  pay  some  instalments  with  notes? 

6.  Stock  certificates  are  issued  to  the  original  subscribers  bearing 

the  printed  words  "fully  paid  and  non-assessable,"  when  in 
fact  they  were  only  partly  paid  for ;  later  the  stock  is  sold  and 
assigned  to  a  purchaser  without  notice  of  the  fact  that  it 
is  not  paid  for  in  full.  What  remedy  has  a  creditor  or  the 
corporation  against  the  original  subscriber  and  against  the 
transferee? 

7.  What  is  the  object  of  "no  par  value  stock"? 

8.  What  is  common  stock?    Define  non-participating  stock.    What 

is  preferred  stock?    Is  preferred  stock  a  debt  of  the  corpora- 


STOCK 


409 


; 


1 


tion?    Why  do  investors  object  to  non-cumulative  preferred 

stock  ? 
9.    Have  preferred  shareholders  a  right  to  recover  when  dividend 

is  earned  but  not  declared  ?    In  event  of  insolvency  can  a  holder 

of    preferred    stock    claim    payment    for    par    value    before 

creditors  ? 
Which  is  the  safer  investment,  preferred  or  common  stock? 

Why? 
Why  is  common  stock  sometimes  more  valuable  than  preferred 

stock  ? 
What  is  treasury  stock?    How  does  it  differ  from  unissued  stock? 

13.  If  a  stock  certificate  is  lost,  what  should  be  done? 

14.  How  is  stock  transferred? 


10. 


II. 


12. 


I 


I 


•       i 


CHAPTER  LIII 

STOCKHOLDERS  AND  THEIR  MEETINGS^ 

§  3fio,    Incorporators 

Incorporators  arc  the  persons  who  sign  the  certificate  of 
incorporation.  They  must  usually  be  subscribers  for  stock  and  y^ 
later  become  stockholders.  It  is  the  incorporators  who  draw 
up  the  application  and  make  the  charter  provisions.  After  the 
charter  has  been  accepted,  those  who  have  subscribed  for  stock 
become  stockholders  and  these  elect  the  directors.  [(See  §  331. ) 

§  361.    What  Constitutes  a  Stockholder 

The  stockholders  of  a  corporation  are  those  who  actually 
hold  its  stock,  or  who  have  subscribed  for  its  stock  and  have 
had  their  subscriptions  duly  accepted  by  the  corporation.    A 
"stockholder  of  record"  is  one  whose  ownership  of  stock  k   \/ 
duly  recorded  upon  the  books  of  the  corporation. 

When  outstanding  stock  is  purchased,  the  transfer  must  be 
entered  on  the  books  of  the  company  before  the  purchaser  be- 
comes a  stockholder  of  record,  entitled  to  vote,  to  share  in 
dividends,  and  to  receive  a  certificate  of  stock  in  his  own  name. 
Until  that  time  he  is  the  equitable  owner  of  the  3tock,  but  is 
not  known  or  recognized  in  any  way  as  a  stockholder. 

1 369.    Rights  of  Stockholders 

The  individual  stockholder  has  but  little  part  in  the  active  ^ 
managhnent  of  the  corporatioa 

The  rights  of  holders  of  common  storlc  mav  be  stated  as 
follows: 


STOCKHOLDERS  AND  THEIR  MEETINGS 


411 


■  ror  form  of  Binutcs  of  ■tockholderi'  meetinct.  ace  Chapter  CVII,  Pons  S9. 

410 


I. 


2. 


s- 


To  be  notified  of,  and  to  participate  in,  all  stock- 
holders* meetings,  in  person  or  by  proxy,  and  toCJ 
cast  one  vote  for  each  share  of  stock  held. 

To  vote  in  the  election  of  directors  at  the  annual  Q 
meeting  each  year,  and  upon  ^"y  arp**^^"^*""^  ^^ 
the  by-laws  or  other  general  matters  brought  be- 
fore_tfieineeting. 

To  share,  in  proportion  to  the  amount  of  stock  M) 
owned,  in  all  dividends  declared  on  the  common 
stocjs^  /►-. 

In  event  of  the  dissolution  of  the  corporation,  to    W 
share  in  like  proportion  in  any  ^frf^ft*'  r<^rnajnin^ 
alter  all  the  corporate  debts  and  obligations  have 
been  jpaid. 

To  inspect  the  corporate  books  and  accounts. 


§ 


It  should  be  said,  however,  that  this  last  right  has  been 
so  restricted  in  practice  as  to  amount  to  little  more  than  the 
right  to  inspect  the  list  of  holders  of  stock  as  shown  by  the 
stock  ledger. 

The  remedy  of  a  stockholder  denied  access  to  the  books 
would  be  by  writ  of  mandamus.  Theoretically,  the  holder  of 
a  single  share  may  enfSrce  this  right  of  inspection,  but  prac- 
tically the  courts  would  hesitate  to  act  where  the  interest  was 
small.  To  inspect  the  books  of  a  large  corporation  is  a  serious 
interference  with  business  and  the  courts  would  not  allow 
inspection  except  for  weighty  reasons. 

Holders  of  preferred  stock  have  the  same  rights,  except  as  \  \ 
these  may  have  been  extended  or  restricted  by  the  conditions  |  • 
under  which  the  stock  was  issued. 

§  363*    Powers  of  Stockholders 

The  powers  of  the  stockholders  may  be  summarized  as 
follows: 


V 


\^ 


413  CORPORATIONS 

1.  Adoption  or  amendment  of  by-laws. 

2.  Election  of  directors. 

3.  Amendment  of  the  charter.     (See  §  329.) 
4*  Dissolution  of  the  company. 

5.  Sale  of  the  entire  assets  of  the  company.  . 

6.  The  exercise   of  any  specially   conferred  charter     v 

powers. 

The  board  of  directors  is  the  sole  managing  and  controlling 
atitliuiil^  ot  tnc  corporation.  The  stockholders  make  the  by-  J 
laws  by  which  the  directors  are  controlled,  and  elect  the  direc- 
tors by  whom  the  corporate  affairs  are  conducted,  but  beyond 
this  they  do  not  interfere  in  any  way  with  the  transaction  of 
the  corporate  business  or  the  management  of  the  corporate 
property.  All  this  rests  with  the  board.  Nor  ran  \\\e  gtorV- 
holders  act  directly  for  the  conx>ration.  A  contract  signed  by 
every  stocWiolder  would  not  be  the  contract  of  the  corporation! 
and  would  not  bind  the  corporation,  unless  also  signed  by  its/  \/^ 
proper  officers  or  otherwise  formally  accepted  by  its  directors] 

i  364.    Liabilities  of  Stockholders 

A  stockholder  is  liable  to  the  company  or  to  its  creditors 
for  any  instalments  remaining  unpaid  upon  stock  subscribed 
for  by  him.    He  may  also  be  liable  to  creditors  on  any  stock 
held  by  him  which  is  not  full-paid.    Should  dividends  be  paid  I  -j 
from  capital  instead  of  from  profits,  stockholders  are  liable  to  I  ' 
corporate  creditors  for  any  amount  so  received  by  them. 

Also  stockholders  of  national  banks  and  of  most  state 
banks  and  trust  companies  are  held  liable  in  case  of  the  in-  v^ 
solvency  of  their  institutions,  for  an  amount  equal  to  their 
original  subscriptions. 

As  a  rule,  however,  in  the  ordinary  business  corporation 
the  holder  of  full-paid  stock  is  in  no  danger  of  losing  any-    ^ 
thing  more  through  corporate  failure  or  insolvency  than  the 
amount  he  has  actually  invested  in  his  stock. 


STOCKHOLDERS  AND  THEIR  MEETINGS 


413 


§365.    Stockholders'  Meetings 

The  annual  meeting  is  usually  the  only  regular  meeting  of 
stockholders.  It  mii<;t  \^^  hejfl  in  thf  gt;^t*>  ^'"  ^"^^i>^^  ^^^  ^«^"^- 
pnny  i^  jpmrprirgff^H,  unlcss  the  laws  of  such  state  expressly 
provide  otherwise,  and  it  is  usually  required  that  this 
annual  meeting  be  held  in  the  principal  office  of  the  cor-  ^ 

poration. 

^"Tx  the  annual  npppttn^  the  Hirprtors  for  the  ensuing  year  _ 
are  elected,  the  reports  of  the  officers  are  presented,  any  amend- 
ments to  the  by-laws  may  be  submitted  and  acted  upon,  and 
any  affairs  of  the  company  requiring  the  action  or  attention  of 
the  stockholders  may  be  presented  for  consideration.  If  any 
sweeping  change  in  the  business  or  policy  of  the  company  is 
desirable,  it  is  usually  authorized  by  action  of  the  stockholders 
at  this  meeting. 

If  action  by  the  stockholders  is  necessary  in  the  interim 
between  the  annual  meetings,  a  special  meeting  may  be  called 
by  resolution  of  the  directors,  or  in  any  other  way  that  the 
by-laws  may  prescribe  or  permit.  This  call  is  followed  by  a 
notice  to  the  stockholders,  giving  the  necessary  details  of  the 
meeting  which  is  to  be  held.  In  the  case  of  a  special  meet- 
ing, both  call  and  notice  should  state  the  purpose  of  the 
meeting. 


V 


§  366.    Quorum 

The  quorum  at  stockholders'  meetings  should  be  prescribed 
in  the  by-laws.    The  usual  provision  requires  the  presence  of 
a  majority  of  the  outstanding  stock  in  order  to  transact  busi- 
ness.   When  a  quorum  is  present,  a  majority  of  this  quorum^ 
has  powerjo^decide  any  question  that  i<^  \^rcm^y\\  before  the^ 
meeting,  unless  it  should  be  a  special  matter  requiring  a  two-    /  3 
thirds  or  other  larger  vote  to  pass.    Where  it  is  not  otherwise 
prescribed  the  common  law  rule  is  that  those  in  attendance 
will  constitute  a  quorum. 


414 


CORPORATIONS 


§367.    Votings 

Only  stockholders  of  record  ^^r^  Ar.»;»i^  |^  ^.^^-p  ^^^^^^^^^| 
^d^pecial  meetings  of  the  stockholders.  Rarh  i,..^ixv,xuci  ui 
record  is  entitled  to  one  vote  for  eacJi  share  of  stock  held  in 
his  name.  That  is,  if  five  directors  are  to  be  elected,  the  holder 
of  one  share  may  cast  one  vote  for  each  of  these.  The  holder 
of  ten  shares  may  cast  ten  for  each  and  so  on. 

Under  the  cumulative  system  of  voting,  which  is  designed 
to  secure  for  the  minority  a  representation  on  the  board,  the 
holder  of  one  share  still  casts  one  vote  for  each  director  to 
be  elected,  but  he  may  cast  all  five  votes — if  five  directors  are 
to  be  elected — for  any  one  candidate  or  may  distribute  them 
among  the  five  as  he  sees  fit. 

Voting  at  elections  of  directors  is  usually  by  ballot. 

§  368.    Voting  Trusts 

It  is  frequently  necessary  or  important  that  the  agreed 
management  of  a  corporation  be  preserved  consecutively  for  a 
term  of  years.  This  may  be  for  the  protection  of  minority 
or  special  interests  or  other  valid  reasons^  In  spch  a  case  a 
votifiglrust— sometimes  called  a  "stock ^ool"— is  the  usual  ^ 
means  by  which  this  is  secured. 

This  arrangement  provides  that  sufficient  stock  to  insure 
the  desired  end  be  placed  in  the  hands  of  trustees  for  a  certain 
period  of  time  with  definite  instructions  as  to  the  way  in  which 
this  stock  shall  be  voted.  A  voting  trust  applies  only  to  the 
stock  of  a  single  corporation,  and  must  be  distinguished  from 
the  attempts  which  were  made  to  combine  a  number  of  cor- 
porations under  one  trust  management  This  latter  system 
was  used  to  form  combinations  in  restraint  of  trade,  and  on 
that  account  has  been  prohibited. 

N£BJ&w4*  and  Mdiylaiid  are  the  only  states  in  the  Union 
in  which  the  voting  trust  is  e^^pr^^ggty  c^nrtinnrd  b3r  ctatutc, 
although  in  New  jersey,  Massachusetts,  California,  Alahama] 


K 


STOCKHOLDERS  AND  THEIR  MEETINGS 


415 


and  some  other  states  the  courts  have  rendered  decisions  favor- 
ing arrangements  of  this  kind  and  intimating  that  where  the 
trust  was  for  a  proper  purpose  and  for  a  reasonable  time,  and 
did  not  contemplate  any  advantage  from  which  other  stock- 
holders of  the  same  corporation  were  excluded,  it  was  not 
contrary  to  any  principle  of  law  or  equity. 

Any  voting  trust  formed  to  promote  a  monopoly,  or  tc 
dominate  the  corporation  in  the  interests  of  another  corpora- 
tion, or  to  deprive  other  stockholders  of  their  rightful  powers, 
would  undoubtedly  be  held  illegal. 


§  369.    Proxies 

Any  stockholder  entitled  to  vote  at  a  stockholders'  meeting 
may  usually  give  a  proxy  (a  power  of  attorney)  empowering 
some  other  party  to  attend  stockholders*  meetings  as  his  rep- 
resentative and  vote  his  stock  in  his  stead.  ( See  Chapter  CII, 
Forms  31,  33.)  In  New  York  a  proxy  is  good  for  any^ 
definite  period  not  exceeding  eleven  months.  In  Pennsylvania  a 
proxy  IS  not  good  after  two  months.  A  proxy-holder  need 
not  be  a  shareholder.  The  inspectors  of  election  nave  power 
to  determme  the  genuineness  of  any  proxy. 


I. 


2. 


Review  Questions 

What  constitutes  a  man  a  stockholder  ?  What  rights  have  stock- 
holders ? 

If  a  stockholder  were  denied  access  to  the  books  what  could 
he  do?  Could  the  holder  of  a  single  share  enforce  inspection 
of  the  books? 

What  is  the  managing  authority  of  a  corporation?    What  power 

.   has  a  stockholder?    What  power  have  the  stockholders? 

What  right,  if  any,  in  your  state,  has  a  stockholder  to  demand 
a  financial  statement?  Are  stockholders  in  your  state  liable 
for  wages  of  employees  if  the  corporation  becomes  insolvent? 


1^ 


^ 


1! 


4i6 


CORPORATIONS 


5.  If  a  stockholder  owned  more  than  one-half  of  the  stock,  could 

he  bind  the  corporation  by  a  contract? 

6.  What  are  the  liabilities  of  a  stockholder  ?    What  is  the  liability 

of  a  stockholder  in  a  national  bank? 

7.  Where  should  the  annual  stockholders*  meeting  be  held?    What 

is  the  usual  rule  as  to  quorum? 

8.  Explain  the  operation  and  advantage  of  cumulative  voting? 

9.  What  is  a  voting  trust  ?    What  can  voting  trusts  do  legally  ? 

10,  Must  a  proxy-holder  be  a  stockholder? 

11.  When  does  a  proxy  which  does  not  specify  period,  become  in 

your  state  invalid? 
la.    Who  has  authority  to  determine  the  genuineness  of  proxies? 


CHAPTER  LIV 

DIRECTORS  AND  OFFICERS* 

§  370.     Status  and  Functions  of  Directors 

The  board  of  direcl;or<;   elected  bv  the  stockholders,  has 
the  entire  management  of  the  corporate  affairs" 


The  directors  of  a  corporation  are  held  to  be  its  agents, 
and,  in  a  measure,  trustees  for  the  stockholders.     They  are' 
responsible  for  its  proper  management. 

§37'-     Number  and  Authority 

In  most  of  the  states  there  must  be  at  least  three  directors. 
The  maximum  number  is  not  usually  designated.  For  all 
ordinary  corporations  a  small  board  is  most  convenient,  and 
as  a  rule  most  effective. 

When  the  board  is  unwieldy  or  difficult  to  assemble,  the 
actual  administration  of  the  corporate  affairs  is  usually  dele- 
gated to  an  executive  committee  composed  of  from  three  to 
^vt  members  of  the  board. 

The  board  elects  the  corporate  officers,  appoints  such  other 
agents  as  may  be  necessary,  and  has  entire  charge  of  the  prop- 
erty, interests,  business,  and  transactions  of  the  company.  The 
board  of  directors  is  the  embodied  corporate  authoritv. 

The  directors  can  only  act  collectively  and  in  a  regular 
meeting  or  m  a  auly  assembled  special  meeting.  Tsingle 
director,  unless  autnori zed  thereto  by  resolution  of  the  board, 
or  specially  empowered  in  some  other  way,  has  no  standing  in 
corporate  matters  above  that  of  any  other  stockholder. 

*  For   forms  of  calls,   notices,   minutes,   etc.,   of  directors'   meetings,   see   Chapter 
CVII,   Forms   58,   60,  62,   65. 


11 


4l8  CORPORATIONS 

S  373.    Liabilitks 

Directors  are  liable  In  the  same  manner  as  trustees  for  any 
wrongdoing ;  also  tor  any  neglect  that  results  in  loss  to  the 
corporation.    For  instance,  they  are  liable  if  they  issue  stock  V 
as  full-paid  which  is  not  full-paid,  or  pay  dividends  out  of  the     \ 
capital  of  the  company  when  there  are  no  profits,  or  otherwise^^-^ 
abuse  their  power. 

Contracts  between  directors  and  the  corporation  are  gener- 
ally lipid  by  tht  couits  lu  be  luidabk  but  aro  prooumpti-ygly 
valid.    They  may  be  voided  by  the  corporation  if  any  element 
of  unfairness  is  involved.    Contracts  of  this  kind  will  alwnvs  1 1 
nowever,  be  more  carefully  scrutinized  than  ordinary  con- 11  ^y 
tracts,  and  their  validity  may  rest  on  the  circumstances  under  \\ 
which  the  contract  was  made. 

In  a  case  of  a  threatened  breach  of  trust  by  the  directors 
or  officers  of  a  corporation,  an  injunction  may  be  asked  by  a 
stockholder  or  stockholders  to  prevent  this  and  the  stock- 
holder's rights  in  this  respect  are  not  affected  by  the  amount 
of  his  holdings.  The  same  action  may  be  taken  by  a  director 
to  remedy  the  breaches  of  his  codirectors. 

Creditors  are  not  usually  given  any  rights  to  interfere  in  \j 
the  management  of  a  corporation  until  they  have  obtained  l/i^ 
judgment  and  had  an  execution  returned  unsatisfied.  fi 

"The  creditors  of  a  corporation  have  no  right,  either  at 
law  or  equity,  merely  because  they  are  creditors,  to  interfere 
in  the  management,  or  to  go  into  a  court  of  equity  to  restrain 
it  from  making  contracts  or  disposing  of  property,  unless 
there  is  fraud  or  breach  of  trust  to  give  the  court  of  equity 
jurisdiction.**  * 

A  rorpnratinn  where  it  is  being  pressed  for  payment  of 
debts  may  make  an  assignment  for  the  benefit  of  creditors. 


*  Wither  ▼. 


c, .**'r''V.-^?[°?r'',,*'  ^^^V  ^^  ^  ?'Pw  ^5.    Thomas  ▼.  Sweet,  37  Kan.  183. 

Stewart  ▼.  Lehigh  Valley  R.  R,  Co.,  38  N.  J.  L.  55.    Tompkins,  Summary  of  Law  of 
rnrate  Corporations.. 


DIRECTORS  AND  OFFICERS 


419 


§373.    Qualifications 

Most  of  the  states  require  that  directors  <i^?^11  hp  stock- T^) 
holders  of  the  company ;  also,  usually,  that  one  member  of^ 
the  board  shall  be  a  resident  ojJhejtate_oL-Anr.orporatlonr 
In  some  of  the  states  the  stockholding  requirement  may  be 
waived  by  provision  in  the  charter  or  by-laws. 


§  374-    Vacancies  and  Removal  of  Directors 

A  board  of  directors  may  continue  to  act  though  there  be 
vacancies,  provided  sufficient  members  remain  and  are  present 
to  make  up  a  quorum.  Varnnries  should,  however,  be  filled 
as  thev  occur,  and  authority  to  do  this  should  be  conferred 
on'"3ieboard  by  the  by-laws.  The  board  does  not  possess  this 
power  unless  it  is  specifically  given. 

Directors  cannot  be  removed,  either  by  the  other  directors 
or  By  the  stockholders,  unless  such  power  of  removal  is  ex- 
pressly  given  by  the  certificate  of  incorporation,  the  by-laws, 
oniie  stall ili'^  t>f  Lhe  sUle.  -— 


§  375.    Regular  Meetings 

The  times  and  places  for  regular  meetings  of  the  directors 
are  "fixed  by  the  by-laws.  Monthly  meetmgs  are  generally' 
prescribed.     In  a  small  company  one  regular  meeting  a  year 


may  suffice.  Should  action  of  the  board  prove  necessary  in 
the  interim,  special  meetings  may  be  readily  called,  or  be  held 
by  consent  whenever  the  occasion  arises. 


ix^ 


§  376.    Special  Meetings 

The  bv-laws  should  clearly  prescribe  th^  nnt^\hnA  hy  yihlrh 
special  meetings  of  the  board  are  to  be  called.  Usually  it  is 
^ovided  that  the  president  or  two  or  more  of  the  directors 
ffiay  call  such  meetings.  The  call  must  be  followed  by  a  notice 
to  each  director.    Calls  for  special  meetings  must  specify  the 


410 


CORPORATIONS 


time,  the  place,  and  the  business  to  be  transacted,  these  details 
must  be  repeated  in  the  notice,  and  no  other  business  than  that 
so  specified  may  be  transacted  at  that  meeting. 

§  377.    Quorum 

A  majority  of  the  whole  board  is  usually  necessary  to  con- 
st!fute3j[|UQrum!  A  majority  of  the  prescribed  quorum  de- 
cidcslheaction  of  the  board.  Unless  regulated  by  statute,  the 
charter  or  by-laws  may  prescribe  the  number  necessary  to  form 
a  quorum. 

Directors  cannot  give  proxies  authorizing  others  to  rep-   *^^ 
resent  them  and  vote  for  them  at  directors'  meetings.    Thc*^ 
directors  occupy  a  position  of  trust  and  they  cannot  as  in- 
dividuals delegate  to  others  the  trust  vested  in  them. 

§  378.    Officers 

Ti^|>   t^€>r/l    i>«i«i    n/^    rttily    fhrr^t^^h    ftlA    nflf^ffrfr    and    agCtttS 

whirf|  if  appninf«i  Usually  the  clcctiou  of  officers  is  held  at  J 
the  first  board  meeting  in  each  year  after  the  election  of  the  J 
new  directors.  In  this  way  the  new3irectors  may  elect  their 
own  officers  and  thereby  secure  an  official  staff  in  harmony 
with  their  views  and  policy.  The  usual  executive  officers  of 
a  corporation  arc  a  president,  vice-president,  treasurer,  and 
secretary.  Two  offices  may  be  held  by  the  same  person  if 
the  duties  are  not  incompatible  and  if  the  by-laws  permit. 

The  president  and  vice-president,  as  presiding  officers  ^ 
the  board,  should  be  chosen  from  its  membership. 

If  a  chairman  of  the  board  exists,  that  official  presides  at 
aU  meetings  of  the  board.  In  this  case  the  general  rule  that 
♦l^#>jr<M|iapnt  must  he  a  member  ot  tne  Doard  is  not  so  Im- 
perative. If,  however,  the  president  is  to  be  the  chief  execu- 
Sveof  the  company,  he  must  almost  of  necessity  be  present! 
at  meetings  of  the  directors,  participate  in  their  discussions 
and  deliberations,  and  should  therefore  be  a  member  of  the] 


1 


[ 


I 


DIRECTORS  AND  OFFICERS 


421 


board.    Save  as  to  these,  the  officers  need  not  be  selected  from 
the  board. 

The  officers  of  the  company  carry  out  the  instructions  of 
the  board,  and  have  no  independent  powers  or  authority  out- 
side the  routine  duties  assigned  them  by  the  by-laws  or  by  the 
statutes. 


1^ 


§  379.    Salaries  , 

Unless  it  is  specified  that  officers  are  to  receive  salaries,  j^j^^^-r:? 
they  are  not,  as  a  rule,  entitled  to  charge  for  their  official  ^ 
services.    ^Neither  is  it  ordinarily  legal  for  the  directors  to  /iuv 
vote  compensation  for  such  officiaTservices  after  thevlare 
performed.    To  avoid  misunderstanding,  however,  the  condi- 
tions, whatever  they  may  be,  should  be  clearly  stated  in  the 
by-laws — ^that  the  officers  of  the  corporation  shall  receive  no 
salaries,  or  that  the  officers  shall  receive  only  such  compensa- 
tion for  their  services  as  the  board  may  designate  at  the  time 
of  their  appointment,  or  that  the  officers  shall  receive  the 
salaries  specified  in  the  by-laws.     The  whole  matter  is  one 
to  be  adjusted  from  a  business  standpoint,  and  much  trouble 
is  likely  to  be  saved  by  ajiefinite  arrang^ement. 

If,  however,  an  officer  is  neither  stockholder  nor  director 
of  the  company  and  stands  in  no  relation  which  would  make 
it  to  his  interest  to  serve  without  compensation,  there  will 

be  a  prima  facie  obligation  to  pay  him^ " 

Officers  who  are  also  directors  cannot  vote  salaries  to  them- 
selveTeven  diough  they  are  also  holders  of  a  majoritv  of  the 


.    • 


stock.    But  an  officer  who  is  also  a  stockholder  and  a  director 
ma^  recover  for  services  rendered  outside  his  official  duties  if 
uch  services  are  authorized  by  the  directors^ 

§  380.    Vacancies  and  Removal  of  Officers 

TVin   Hirprtnr*;  have  power  to  fill,    for  |b<>  iinpy^pir^rl   fprm 

any  vacancies  that  may  occur  among  the  officials  of  the  cor- 


422 


CORPORATIONS 


DIRECTORS  AND  OFFICERS 


423 


poratiofii    Officers  cannot  be  removed  at  the  pleasure  of  tKe 

or  statute  laW  pvc  jh? 
this  power. 


1^ 


§381.    Dividends 

The  matter  of  declaring  dividends,  the  time  when  they  arei  \ 
to  be  declared,  and  the  amount  rest  in  the  discretion  of  the!  J 
board  of  directors.    When  a  dividend  is  once  puhjjrl}^  tl^rhrfd, 
it  cannot  be  rescinded.    If  the  resolution  is  adopted  but  is  not 
kfSown,  the  declaration  of  the  dividend  can  be  nullified. 

Dividends  may  be  legally  declared  only  from  surplus  or  net 
profits.  If  paid  from  the  capital  or  obtained  in  any  way  that  . 
will  impair  the  capital  of  the  company,  the  directorsjtender 
themselves  personallv  liable,  and  should  the  corporation  be — — 
come  ins£jHgnt  the  ;^rnf^""<'g  ^  p^id  may  bff  recovered  from 
the  directors  or  stockholders  for  the  benefit  of  creditors.  The 
^enefaTrulrTn-this  country  is  that  betore  dividends  canlSe 

^iropcrly  declared,  any  impairment  of  capitnl  through  businesy 
losses  in  previous  years  or  through  depreciation  must  be  first    p 

^made  goo3^    In  other  words,  dividends  mubt  be  decldied  out  ^^y  y 
— oi-^^sttrphisZL  ,/^to 

Dividends  are  paid  only  to  stockholders  of  record  and  must?  1 
be  equal  as  between  holders  of  the  same  class  of  stock.    Par-\  \iy 
ticular  stockholders  may  not  be  favored  either  in  time  or  in  ]  I 
amount  of  payment.  • 

§  38a.    Bank  Deposits 

The  moneys  of  a  corporation  should  be  deposited,  in  the 
name  of  the  corporation,  in  some  bank  or  trust  company  desig- 
nated, by  the  board  of  directors.  Moneys  so  deposited  should 
be  drawn  out  only  by  checks,  signed  by  the  treasurer  and 
countersigned  by  the  president  or  by  such  other  officers  as  may 
be  properly  authorized  thereto. 
V 


§  383.    Execution  of  Contracts 

Corporate  contracts  must  be  authorized  by  resolution  of  the 
recioi  b.    In  practice,  however,  this  tule  is  soFnewhat 


relaxed.  The  officers  customarily  r"^^^  mntrart^s  in  minnr 
matters  incident  to  their  official  duties  without  express  au- 
thorization.  If  the  officers  have  been  habitually  permitted  to 
;  conirkcl  foT  the  corporation  without  specific  authorization, 
such  contracts,  unless  obviously  in  excess  of  the  proper  official 
powers,  are  binding  on  the  corporation. 

§384.    Corporate  Seal 

The  corp^i-atf>  ^^al  }f^  fithfr  proviH^^  ^^*-  ^'*^  ^^^  ^y  ^-^^"^ 
anri  jc  therefore  adopted  with  the  bv-laws.  or  is  adopted  by, 
resolution  of  the  board  of  directors.    It  should  bear  the  name 
.-^  the  company,  the^  state  of  incorporation,  and  tne  year  in 
which  the  incorporation  was  effected.  _ 


I. 
2. 

3- 
4. 


Review  Questions 

Who  IS  responsible  for  the  management  of  a  corporation? 
What  is  the  object  of  having  an  executive  committee?     What 

authority  has  an  executive  committee? 
What  are  the  general  powers  of  a  board  of  directors? 
Who  is  responsible  if  dividends  are  paid  illegally? 

5.  May  a  person  accept  a  present  of  shares  in  a  company  in  con- 

sideration of  his  joining  the  board  of  directors? 

6.  State  generally   who   is   entitled   to   file   a  bill   to   compel   the 

officers  and  directors  of  a  corporation  to  account   for  any 
breach  of  duty  or  breach  of  trust. 

7.  A  company's  earnings  for  a  year  would  enable  it  to  declare  a 

dividend  of  10  per  cent.  The  directors  refuse  to  declare  a 
dividend,  deeming  it  better  to  use  the  profits  in  extending  the 
business.  Have  shareholders  who  want  the  dividend  any 
remedy  at  law? 
Is  a  director  or  a  stockholder  chargeable  with  knowledge  of 
a  corporation's  business  merely  because  he  is  a  director  or  a 
stockholder  ? 


a 


i 


424 


CORPORATIONS 


10. 

II. 


12. 


Are  the  executive  officers  of  a  corporation  entitled  to  salaries? 

How  can  officers  secure  salaries? 
Can  directors  give  proxies  for  directors'  meetings? 
Has  the  treasurer  of  a  corporation^  as  such  officer,  any  authority 

to  bind  the  corporation  by  a  contract  for  work,  labor  and 

services  ?    Explain. 
From  what  source  should  dividends  be  paid?    May  a  dividend 

be  legally  declared  if  former  losses  have  impaired  the  capital 

of  the  company? 


i: 


t 

I  ; 
fii 


11 


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1920 


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Columbia  ?Hmbers(ttp  ^ 

inttieCttpof^lD|»ork 

LIBRARY 


School  of  Business 


Business  Law 


A  Working  Manual  of  Every-day  Law 


By 

THOMAS  CONYNGTON 

Of  the  New  York  Bar;  Author  of  "  Corporate  Organization 
and  Management,"  "  The  Modern  Corporation,"  etc. 


VOLUME  II 


SECOND  EDITION 


NEW  YORK 

THE  RONALD  PRESS  COMPANY 

1920 


Copyright,  1918,  by 
Tbe  Ronald  Pkess  Company 

Copyright.  1920,  by 
The  Ronald  Press  CoMPAWf 


AU  Rights  Reserved 

^    ij  I  St; 


TGIl 


M 


CONTENTS 


VOLUME  II 


Part  X — Real  and  Personal  Property 

LV    PROPERTY  Rights 

§  385.  Origin  of  Property 

386.  Rights  to  Personal  Property 

387.  Rights  Classified 

LVI    Real  and  Personal  Property  Distinguished 

§  388.  Personal  Property  Defined 

389.  Real  Property  Defined 

390.  Questionable  Cases 

391.  Fixtures 


427 


430 


LVII    Title  to  Personal  Property 

§392.  Title 

393.  Original  Title 

394.  Derived  Title 

395.  Accession 

396.  Confusion 

397.  Kinds  of  Ownership 

LVIII  Transfer  of  Personal  Property     .   ,  . 

§398.  Gift 

399.  Sale 

400.  Chattel  Mortgage 

401.  Conditional  &iles 

LIX    Estates  in  Real  Property       .... 

{  402.  The  Nature  of  Real  Property 

403.  Right  to  Real  Property 

404.  Estates  in  Real  Property 

405.  Remainders  and  Reversions 

406.  Vested  and  Contingent  Remainders 

407.  Executory  Devises 

408.  Time  Limit  to  Effect  and  Executory  Devise 

409.  Dower  and  Curtesy 

410.  Homestead 

III 


433 


438 


443 


^     A 


IV 


Chapter 


CONTENTS 


lU:  KfSLdes  and  Tenancies  in  Common 
413.  Trusts 


Page 


IX    Title  to  Real  Property  

8414.  Original  Title 
415.  Acquired  Title 

Ua    Transfer  of  Real  Property    .      •      .      .      • 
S  416.  Conveyance  of  Real  Property 

417.  Warranty  Deed 

418.  Record  of  Deeds 

419.  Restrictions  in  Deeds 

420.  Searching  Title      ^^^ 

421.  Mortgage  of  Real  Property 

422.  Foreclosure 

423.  Kinds  of  Mortgages 

LXII    Landlord  and  Tenant 

1 424.  Lease  of  Real  Property 
A^K   Parties  to  a  Lease  ,      „     , 

^l  Rights  and  Duties  of  a  L^^^d 
I2T   Rights  and  Duties  of  a  Tenant 
4^8.  Expediency  of  a  Written  Agreement 

Part  XI— WiUs  and  Inheritance 
urni    Distribution  of  Property  of  an  Intestate 

1 420.  Definitions 
430.  Rules  of  the  Common  Law  ^^ 
Si   What  Will  Become  of  Real  P^^y. 
SI;  Whtt  Will  Become  of  Pei^nal  Property 
433.  Is  It  Wise  to  Make  a  Will? 

LXIV    How  TO  Make  a  Will 

&  AiA  Who  Can  Make  a  Will        ,  -  -  , .      „  riiTiii 
*  ^K   R^tnSns  on  the  Power  of  Making  a  Will 

iiS*.  General  Form  for  Wills 

i37.  Kinds  of  WUls 

438.  Executors 

4-10.  Trustees 

J^o.  Trust  Estates 

Jti:  K^Dispose  of  Real  Pro^V 
1T%   How  to  Dispose  of  Personal  Property 

JS:  mResidSnT  Clause  and  Its  Uses 

445.  What  to  Do  with  the  Will 

UCV    How  TO  Change  or  to  Revoke  a  Will      . 

S  446.  How  to  Change  a  Will 
447.  How  to  Revoke  a  WiU 


452 


%3^ 


CONTENTS  V 

Chapter  Page 

LXVI    Other     Ways    of  Disposing  of    Property  After 

Death .      504 

§  448.  Deeds  of  Trust 
449.  Gifts  in  View  of  Death 


LXVII    The  Settlement  of  an  Estate 

§  450.  If  the  Deceased  Person  Left  a  Will 
451- 
452. 


S06 


If  the  Deceased  Person  Did  Not  Leave  a  Will 
Settlement  Without  Administrator 


467 


475 


485 


50X 


LXVIII    Duties  of  Executors  and  Administrators 

§  453-  The  Procedure  of  Administration 

454.  Inventory 

455.  Advertising  for  Claims 

456.  Paying  Legacies 

457.  Caring  for  Funds 

458.  An  Executor's  Authority 

LXIX    Questions  Between  Life  Tenant  and  Remainderman 
§  459.  How  Conflicting  Rights  Arise 

LXX    Intermediate  and  Final  Accounts     .... 

§  460.  The  Obligation  Account 

461.  Kinds  of  Accounts  to  be  Filed 

462.  Final  Accounting 

463.  Preparing  Accounts 

LXXI    Rights  in  Property  When  There  Is  no  Will 

§  464.  In  the  Case  of  Real  Property 

465.  In  the  Case  of  Personal  Property 

466.  Rights  of  a  Husband  or  a  Wife 

467.  What  Creditors  Must  Do 

LXXII    Rights  in  Property  Left  by  Will      .... 

§  468.  If  Real  Property  Has  Been  Devised  By  Will 

469.  If  Personal  Property  Has  Been  Left  By  Will 

470.  Contesting  a  Will 

Part  XII— Personal  Relations 

LXXIII    Husband  and  Wife  ....... 

§  471.  Persons  Who  May  Marry 

472.  What  Constitutes  a  Marriage 

473.  Personal  Rights  of  Husband  and  Wife 

474.  Rights  of  Husband  and  Wife  in  Each  Other's 

Property 

475.  Rights  of  Husband  or  Wife  In  Case  the  CM;her  Is 

Injured 

476.  Divorce 


5" 


S18 


$21 


SH 


528 


535 


vt 


CONTENTS 


CONTENTS 


Chapter 
LXXIV    PA«ENT  ^  C^        ^  „j  p,,,„  i„  Relation  to  CtUd 

liQ   What  Duties  and  Rights  May  Be  Ciaimea  ny 

Adopted  ChUdren 
480.  Children  as  Criminals 

UCXV    Guardian  and  Ward *      * 

1 481.  Personal  Guardian 
482.  Guardian  of  Property 

Part  XIII— Suretyship 

LXXVI    The  Contract  of  Suretyship  or  or  Guaranty  . 

1483.  Definition 

484.  Nature  of  Contract 

485.  Written  Contract 

486.  Parties 

487.  Consideration 

488.  DeUvery  and  Acceptance 

UCXVII    Rights  of  Surety  or  Guarantor     .      .      .      • 

$489.  Notice 

490.  Defenses 

491.  Reimbursement 

492.  Subrogation 
4^3.  Contribution 

494.  Extension  of  Tune 

495.  Discharge 


Page 
546 


*   • 


Chapter 

LXXX    Interest 


vu 

Page 
5«4 


SSI 


S9I 


557 


562 


§512.  Interest 

513.  Discount 

514.  Usury 

515.  Compound  Interest 

516.  Partial  Payments 

Part  XV — Bankruptcy 

LXXXI    Assignment  for  the  Benefit  of  Creditors 

§  517.  Introductory 

518.  Rights  of  Debtors 

519.  Rights  of  Creditors 

520.  Void  Assignments 

521.  Rights  and  Duties  of  an  Assignee 

522.  Form  of  the  Assignment 

523.  Revocation  of  Assignment 

524.  Insolvency 

LXXXII    Bankruptcy  Proceedings 598 

§  525.  Receivership 

526.  Bankruptcy 

527.  Voluntary  Bankruptcy 

528.  Involuntary  Bankruptcy 

529.  Persons  Who  May  Bring  Bankruptcy  Proceedings 

530.  Persons  Who  May  Become  Involuntary  Bankrupts 


Part  XIV— Debts  and  Interest 


LXXVIII 


Debts 

§  496.  Definitions 
S7.  Evidences  of  Debt 
^.  Open  and  Stated  Accounts 

499.  Receipts  and  Rel^ses 

500.  Part  Payment  in  Full  Settlement 

501.  Accord  and  Satisfaction 

502.  The  Appropriation  of  Payment 
5^;  Equitable  ^Jurisdiction  m  Actions 

Accounting 


569 


LXXXIII    Bankruptcy  Proceedings  (Continued)    . 

§  531.  How  Bankruptcy  Proceeding:*:  Are  Instituted 

532.  The  Referee 

533.  Procedure 

534.  Creditors 

535.  Rights  and  Duties  of  Receiver 

536.  Rights  and  Duties  of  Trustee 

537.  Rights  and  Duties  of  Bankrupts  in  Bankruptcy 

Proceedings 

538.  Prrferred  Creditors 


604 


for  an 


Lxxxrv 


LXXDC    Enforcing  Payment  op  Debts   .      '      '      '    .' 
|5«H-  When  the  Creditor  Has  Some  Secunty  for 

505.  Where^here  Is  No  Security  for  the  Ddlt 

506.  Attempts  to  Defraud  Cr©^ 

507.  The  Modem  Theory  of  Credit 

508.  liens 

509.  Attachment 

510.  Execution 

511.  Garnishment 


S75 


Discharge  in  Bankruptcy 

§  539-  Discharge  of  a  Bankrupt 
540.  What  Debts  Remain  Undischarged 


613 


Part  XVI — Bailments  and  Common  Carriers 


LXXXV    Bailments 

1 541.  What  Is  Meant  by  Bailment 

542.  Kinds  of  Bailment 

543.  Mandate  and  Deposit 

544.  Commodatum  or  Loan 


619 


Vlll 


Chaptee 


CONTENTS 


|S4S.  Pledge  or  Pawn 
S6   Hiring  of  a  Chattel  .  m_«a*,«P» 

Sy.  B^^ent  for  Custody.  Services,  or  Transport 
548   The  Contract  of  Bailment 
549.  Property  Rights 
?50.  Ehities  of  a  Bailee 
551.  Dissolution  of  Bailment 


Pagk 


•=::* 


LXXXVI    Common  Carmers        ...•••* 

S  SS2.  Common  Carriers  r«„^«. 

'?«  The  Lien  of  The  Common  Camo' 
sS  The  Termination  of  the  Bailment 
C55   Interstate  Commerce  Commission 

«6.  Bills  of  Lading 

«7   Carriers  of  Passengers 

558.  T^hone  and  Telegraph  Compames 

Part  XVII-Patcnts.  TradcMarks,  and  Copyrights 

LXXXVII    Patents         •      '      *      '. 

1 559-  Constitutional  Authonty 
560.  Introductory      .       x><.*^f 
Kfii    Who  May  Obtain  a  Patent 
Si'  Wh^t  Inventions  are  Patentable 
563.  What  Is  Unpatentable 
?S.  Procedure  to  Obtain  Patent 
c6s   Procedure  in  the  Patent  Office 

566.  Interference  Proceedings 

567.  Pinal  Decision 

568.  Government  Fees  Mid  Grant 
<69   Marking  a  Patented  Artide 
cm  Design  Patents 

571.  Foreign  Patents 

572.  Assignments  and  Licenses 

573.  Join^  Inventors 

574.  Infringements 
C7S.  Official  Pubhcation 
576.  Practical  Information 


629 


639 


CONTENTS 

Chapter 
LXXXIX    Registration  of  Trade-Marks 

§  585.  The  Federal  Trade-Mark  Law 

586.  The  Ten- Year  Clause 

587.  Who  May  Register  a  Trade-Mark 

588.  Procedure  for  R^stration 

589.  What  Will  Bar  a  Trade-Mark 

590.  Opposition  to  Registration 

591.  Amendments,  Rejections,  and  Appeals 

592.  Certificate  of  R^istration 

593.  Assignments 

594.  Foreign  R^stration 

XC    Trade-Names  and  Unfair  Competition 

§  595*  Unfair  Competition  Defined 

596.  Trade-Names 

597.  Secondary  Meaning 

598.  Personal  and  Corporate  Names 

599.  Geographical  Names 

600.  Imitation  of  Packages 

601.  Other  Forms  of  Unfair  Competition 

602.  Price  Cutting 


IX 

Page 
660 


666 


XCI    Copyrights  

I  603.  Definition 

604.  Who  May  Obtain  Copyright 

605.  Subject  Matter  of  Copyrights 

606.  The  First  Step 

607.  Subsequent  Procedure 

608.  Making  Out  the  Application  for  Copyright 

609.  The  Affidavit 

610.  The  Fees 

611.  The  Books  Deposited 

612.  Time  for  Filing  Copyright 

613.  Renewals 

614.  British  Copyright 


Part  XVIII— Taxation 


675 


UQCXVni    Trade-Marks 


654 


*  57|:  gSnTaw  Trade-Marks 
So   E^tial  Elements  o  a  Trade-Mark 

580.  What  May  Not  Be  Used 

581.  What  Can  Be  Used 

ifa  ^^SSS^N^t^  Wable  Apart  from 

Business 
584.  Summary 


XCII    Laying  Taxes 

1 615.  Who  Has  the  Right  to  Lay  Taxes 

616.  Purposes  for  Which  Tax  May  Be  Laid 

617.  Methods  of  Taxation 

618.  Extent  to  Which  Persons  May  Be  Taxed 

XCIII    Collecting  Taxes 

§  619.  Assessment  of  Real  Property 

620.  Assessment  of  Personal  Property  • 

621.  Payment  of  Taxes 

622.  Taxation  of  Corporations 

623.  The  Federal  Income  Tax 


687 


693 


CONTENTS 

Part  XIX— Arbitration 


Chaptek 
XCIV    Arbitration  and  Law 


Page 
701 


I 


(  624.  Advantages  of  Arbitration 

625.  Objections  to  Arbitration 

626,  Statutory  Arbitration 
627   Agreement  for  Arbitration 

628.  Withdrawal  from  Arbitration 

629.  Hearings 

630.  Signing  the  Award 

631.  Enforcing  the  Award 

632.  Setting  Aside  the  Award 

Part  XX— Law  and  Lawyers 

XCV    Study  of  Law  for  Business  Men 

1 633.  Law  Books  for  Study 
6^   Law  Books  for  a  Busy  Mail 
635'.  The  Case  Method  of  Legal  Study 
636!  Taking  a  Law  Course 
*>37-  Courses  in  Commercial  Law 

XCVI    Choosing  a  Lawyer  .... 

638.  The  Legal  Profession 

6w   The  Domination  of  Precedent 

6io'.  The  Conservatism  of  the  Law 

641    Ethical  Standards  of  the  Bar 

642.  The  Criminal  Lawyer 

613.  Selecting  a  Lawyer 

644-  Lawyers'  Compensation 

XCVII    Law  as  a  Vocation     .      .      •      -      • 
i  645.  Necessity  of  the  Work  of  a  La^cr 
'  646.  The  Work  of  the  Familv  Lawyer 
647.  Business  and  Public  Life 
Ss.  The  Effect  of  Legal  Trainmg 

649.  The  Dignity  of  the  Prof  ession 

650.  Law  as  a  Practical  Vocation 

651.  Succeeding  in  the  Law 

652.  Deceptive  Statistics 

653.  Practical  Directions 

Part  XXI— Forma 
XCVIII    Drafting  a  Contract      , 
I.  The  Contract  as  Drafted 


CONTENTS 


Chapter 


Page 


XCIX    EviDENaNG  an  Instrument 744 

Form 

2.  Agent's  Signature 

3.  Corporate  Signatures  to  Letters 

4.  Corporate  Signature 

5.  Testimonium  Clause — Two  Corporate  Signatures 

6.  Testimonium  Clause — Corporate  and  Individual  Sig- 

natures 

7.  Attestation  Clause 

8.  Attestation  Clause  in  a  Will 

9.  Acknowledgment  of  Individual  Person 

10.  Acknowledgment  of  Attorney 

11.  Clerk's  Authentication 

12.  Affidavit 


711 


C    Contract  Forms 

Form 

13.  Simple  Contract 

14.  Contract  by  Letter 
Unilateral  Contracts 
Formal  Contract 
Corporate  Contract 
Assignment  of  Contract 
Assignment  of  Contract- 


757 


15. 
16. 

17- 

18. 

19- 


-Indorsement  Form 


7x6 


CI    Forms  of  Sales  Contracts 


Form 
20.  Memorandum  of  Sale 

Contract  of  Sale  by  Letters 
Conditional  Sales  Contract 
Bill  of  Sale— Personal 
Bill  of  Sale — Personal 


762 


21. 

22. 

23. 
24. 

25- 


Contract  of  Warranty 


.      .      7«6 


739 


CII    Agency  Forms  .... 

Form 

26.  Appointment  of  Special  Agent 

27.  Appointment  of  General  Agent 

28.  Power  of  Attorney 

29.  Power  of  Attorney — Corporate 

30.  Revocation  of  Power  of  Attorney 

31.  Proxy — Simple  Form 

32.  Proxy — Unlimited 

33.  Revocation  of  Proxy 

cm    Forms  of  Negotiable  Instruments 

Form 

34.  Check  by  Individual 

35.  Corporate  Check 

36.  Corporate  Indorsement  of  Check 

37.  Voucher  Check 

38.  Note  by  Individual 

39.  Corporate  Note — ^by  President 


767 


773 


xu 


CONTENTS 


CONTENTS 


Page 


Chapter 


^**"r'««vwftte  Note— By  Treasurer     , 
t  toP^  N^J^llateral  Security 

I2.  Sight  Draft 
Tt.  Bank  Acceptance 
il.  Trade  AcceptMice 
J5.  Certificate  of  Protest 

CIV    Forms  of  Employment  Contracts         .      •      • 

Precontract  of  Employment-Simple  Form 
I7.  Contract  of  Employment 

CV    Partnership  Forms 

^S^Simple  Articles  of  Partoership 
?,    ^kles  of  CoparUiership 
52!  Sundry  Partnership  Clauses 

CVI    Corporate  Organization  Forms      .      .      •      • 
Form  . 

S'  |ffiS?Si\t-Common  stock 
ft*  A^^t  of  Stock  Certificate 
f|*  Certificate  of  Incorporation-New  York 
57*.  By-Laws-Simple  Form 

CVII    Forms  for  Corporate  Meetings     .      .  .  •      • 

S:  SJSSlSolfelr  M^S^of  Directors  . 
6%.  Motions 

^S.  gn^fil^'R^rSesignating  Bank 
CVIII    Miscellaneous  Corporate  Forms  .      •      < 

^S%esi«iation  of  Director-Tentative 
fy  ISKn  of  Director-Peremptory 
%'  R^St  of  Committee  on  By-Laws 
%:  T^r^r's  Affidavit-Corporate  Statement 

ax    Real  AND  Personal  Property  Forms    .      . 

70.  Chattel  Mortgage 

11'  ^Swith  Full  Covenants 
7.V  Real  Estate  Mortgage 


Chapter 
CX    Sundry  Forms 


Xlll 

Page 
Sii 


.      781 


784 


Form 

74.  General  Release 

75.  Will 

76.  Bill  of  Lading 

77.  Guaranty  Contract 

78.  Guaranty  Contract  by  Letter 

79.  Agreement  for  Arbitration 


Appendix 

Appendix  A — Chart  Showing  Jurisdiction  of  State  Courts 
B — ^A  Professional  Law  Library  .  .  .  . 
C — Glossary 


821 
822 
826 


.      788 


797 


804 


807 


BUSINESS  LAW 


PART  X 


REAL  AND  PERSONAL  PROPERTY 


) 


CHAPTER  LV 


PROPERTY  RIGHTS 


§385.     Origin  of  Property 

The  natural  right  to  property  arises  either  from  occupancy 
or  labor,  A  man  settled  on  unclaimed  land,  cultivated  it,  and 
built  a  house  on  it,  and  it  became  his.  Men  caught  wild 
animals  and  tamed  them,  and  by  so  doing  became  their  owners. 
After  the  first  taking,  the  right  to  the  particular  property  could 
be  acquired  by  another  person  only  by  transfer,  that  is,  by 
gift  or  sale,  from  the  man  who  originally  owned  it. 

The  other  origin  of  the  right  to  property  is  in  labor.  A 
man  caught  fish,  killed  game,  made  a  war  club,  or  raised 
crops ;  and  the  law  recognized  his  natural  right  to  what  he  had 
acquired  by  his  own  labor. 

Other  less  defensible  means  of  acquiring  property  have 
prevailed  and  the  law  has  recognized  the  titles  despite  their 
wrongful  origin.  Much  real  property  has  at  some  time  been 
taken  from  its  original  possessors  by  conquest.  Title  so  ac- 
quired has  passed  from  hand  to  hand,  has  been  sold,  or  has 
been  inherited,  and  now  the  law  recognizes  as  good  the  title 
that  had  its  origin  in  violence  and  robber>^  Other  property 
rights  originated  in  fraud  and  deceit,  but  human  law  cannot 
well  dispossess  the  present  occupants  who,  in  most  cases,  have 
acquired  title  in  good  faith. 

§  386.    Rights  to  Personal  Property 

Personal  property  is  of  two  kinds,  tangible  (that  which 
may  be  touched),  such  as  goods,  chattels,  commodities,  etc.; 
and  intangible,  for  example,  a  copyright.    Intangible  personal 

427 


428        KEAL  AND  PERSONAL  PROPERTY 

property  may  be  either  certain  rights  in  real  estate  such  as  a 
LsV  for  a  term  of  years,  or  a  license  to  cross  land,  or  nghte 
of  action  against  oLr  people,  that  is,  rights  to  rn^ey^r 
property  evidenced  by  bills,  notes,  stocks^^  bonds,  etc  AU 
rights  of  action  are  technically  known  as  "choses  m  actmn^ 
m  rights  to  trade-marks,  patents,  etc..  are  other  exampks 
of  InlSgible  personal  property.  All  of  these  may  be  owned, 
sold,  and  transferred. 

§387.    Rights  Classified 

Property  rights  may  be  either  present  rights  based  on 
actual  possession  of  the  property  at  the  time  or  they  may 
be  futu^  rights.  If  future  rights  are  certam,  *ey  ^re  ^T^ 
as  vested  rights;  if  they  are  dependent  on  a  condition,  they 
are  called  contingent  rights. 

Vested  Rights.  Where  a  person  has  an  absolute  ngnt 
at  the  present  time  to  property  which  he  will  receive  ^  some 
time  in  the  future,  it  is  known  as  a  vested  right  For  in- 
stance, a  man  may  die  and  leave  his  house  and  lot  to  his  wife 
during  her  life,  and  to  their  son  upon  her  deaA.  The  son 
will  not  be  the  absolute  owner  of  the  property  until  his 
mother's  death;  but  his  mother  will  surely  die  some  day,  and 
either  he,  or  if  he  be  dead,  his  heirs,  are  certam  of  obtaining 
the  possession  of  the  property  then.  So  he  is  regarded  as 
having  an  absolute  or  vested  right  to  the  property. 

Contingent  Rights.  But  if  it  were  not  certam  who  would 
take  the  property  until  the  time  for  taking  it  armed;  or  if 
the  person  is  known  but  his  taking  the  property  depends  on 
some  future  event,  so  that  his  right  to  the  property  is  de- 
pendent on  a  condition,  or  several  conditions,  as  the  case  may 
te,  then  the  right  is  known  in  law  as  contingent.  For  in- 
stlnce.  a  man  might  leave  his  property  to  his  wife  for  ife 
and  to  those  of  his  children  who  might  be  living  at  her  death^ 
U  would  be  impossible  to  say  just  which  children  would  get 


PROPERTY  RIGHTS 


429 


the  property  until  her  death  took  place.    The  interest  of  each 
child  would  be  contingent. 


I. 
2. 

3- 

4. 

5. 
6. 


Review  Questions 

Why  does  one  man  have  a  better  right  to  a  particular  piece  of 

land  than  does  another? 
Why  does  one  man  have  a  better  ri§ht  to  the  Hope  diamond  than 

does  another? 
If  a  man  dies,  who  then  owns  his  property?    Why? 
What  is  the  difference  betwen  tangible  and  intangible  personal 

property?    What  does  intangible  mean? 
What  is  the  difference  between  present  and  future  rights? 
What   is  the   difference   between   vested   rights  and   contingent 

rights?    Explain  fully. 


CHAPTER  LVI 

REAL  AND  PERSONAL  PROPERTY  DIS- 
TINGUISHED 

§  388.    Personal  Property  Defined 

Personal  property  consists  of  tangible  things  of  all  sorts, 
such  as  grain,  wool,  sheep,  cattle,  cloth,  tools,  etc.  It  also 
consists  of  leases  of  real  property  and  all  rights  in  real  prop- 
erty which  are  of  less  dignity  (not  less  duration)  tiian  a 
Ufe  estate.  (See  §  404-)  I"  this  connection,  it  would  be  well 
to  state  that  in  legal  estimation  a  lease  or  estate  for  any  fixed 
time  even  for  a  thousand  or  two  thousand  years,  is  con- 
sidered of  less  dignity  than  a  life  estate.  Any  interest  m  re4 
property  which  is  measured  by  years  is  regarded  as  personal 
property.    The  only  exception  to  this  is  what  are  known  as 

cstscmcnts     C  Sec  §  4  ^  ^  •  / 

Personal  property  includes  goods  and  chattels  and  also 
what  are  legally  termed  "choses  in  action,"  that  is,  rights  of 
action,  or  anything  which  would  give  one  a  right  of  action 
against  another  for  money  or  property.    A  debt  is  a  chose  in 
action.     A  promissory  note,  a  bill  of  exchange,  a  corporate 
bond,  or  a  share  of  stock  gives  a  similar  right  of  action  and 
is  known  as  a  chose  in  action.    A  right  of  action  for  damages 
to  real  property  is  a  chose  in  action.    A  right  of  action  for 
personal  injuries  is  peculiar  to  the  person  injured  and  may  not 
be  assigned.    It  is  therefore  not  regarded,  strictly  speaking,  as 
a  chose  in  action,  though  it  is  a  property  right  belonging  to 
the  person  who  has  a  right  to  bring  the  action. 

Patents,  trade-marks,  and  copyrights  are  also  choses  in 
action  and  thus  are  personal  property.     They  are  valuable 

430 


REAL  AND  PERSONAL  PROPERTY  DISTINGUISHED     43 1 

forms  of  property  which  give  rights  of  action  to  protect  from 
infringers,  a  man's  invention^  the  good-will  of  his  business, 
or  the  reproduction  of  his  intellectual  and  artistic  productions. 

§  389.    Real  Property  Defined 

Real  property,  on  the  other  hand,  consists  of:  (i)  land, 
or  any  estate  in  land  which  is  to  last  for  one's  own  life  or 
that  of  another,  and  (2)  what  are  known  as  easements.  These 
last  are  rights  to  some  profit  or  beneficial  use  which  one  may 
have  in  or  over  the  estate  of  another.     (See  §  411.) 

§390.    Questionable  Cases 

Generally,  it  is  easy  enough  to  distinguish  real  from  per- 
sonal property.  The  difficulty  arises  when  one  considers  such 
things  as  growing  trees,  plants,  etc.,  that  are  fastened  to  the 
soil  itself.  The  law  has  decided  that  all  plants  that  have 
to  be  planted  every  year  and  are  produced  by  man's  labor 
shall  be  considered  personal  property,  even  while  they  are  still 
attached  to  the  soil.  (See  §  402.)  Trees  while  growing  are 
real  estate ;  when  severed  by  the  owner  they  become  personal 
property. 

§  391.     Fixtures 

Houses  and  buildings  are  regarded  as  part  of  the  land  and 
are  real  property.  Every  portion  of  a  building,  therefore, 
which  cannot  be  removed  without  destroying  or  injuring  the 
building  is  also  part  of  the  real  estate.  If  machinery  is  built 
into  a  factory,  it  is  part  of  the  factory,  and  cannot  be  removed 
from  it.  On  the  other  hand,  gas  and  electric  light  fixtures 
which  can  be  removed  without  any  injury  to  a  house  or  build- 
ing are  regarded  as  personal  property,  and  a  tenant  who  puts 
them  in  may  take  them  away  with  him  when  he  leaves.  If 
they  are  put  in  by  the  owner  of  the  building,  they  become  a 
part  of  the  building  and  must  not  be  removed  by  tenants. 


432        REAL  AND  PERSONAL  PROPERTY 

When  a  tenant  has  put  in  machinery  and  improvements 
for  the  better  conduct  of  his  business,  the  courts  will  favor 
him  as  against  the  landlord.  When  the  question  comes  up  as 
between  the  buyer  and  the  seller,  the  courts  will  favor  the 

buyer. 

Movable  articles  which  are  absolutely  necessary  to  the  use 
of  the  building,  such  as  keys,  are  also  regarded  by  the  law 
as  part  of  the  real  estate.  A  fence  is  part  of  the  real  estate, 
and  if  posts  have  been  cut  and  laid  out  for  building  or  re- 
pairing a  fence,  they  are  considered  to  be  already  a  part  of  it 
and  are  real  estate. 


Review  Questions 

1.  What  is  personal  property  as  distinguished  from  real  property? 

2.  What  are  choses  in  action? 

3.  What  kind  of  property  is  a  trade-mark? 

4.  What  is  real  property?    What  is  an  easement? 

5.  Is  a  fence  real  property?    Are  rose  bushes  real  property?    Ar-! 

potatoes  in  the  ground  real  property? 
4    What  are  "fixtures"?    How  does  the  application  of  the  rule  differ 
when  applied:   (a)  between  seller  and  buyer  of  real  estate, 
(b)  between  landlord  and  tenant? 


) 


CHAPTER  LVII 

TITLE  TO  PERSONAL  PROPERTY 

§  392.    Title 

Title  means  the  right  to  property  and  it  also  signifies  the 
means  or  channel  by  which  ownership  is  acquired.  The  sub- 
ject has  always  had  much  interest  for  students  and  teachers 
of  the  law,  because  such  a  large  proportion  of  the  principles 
of  the  law  relate  to  this  subject. 

Title  to  land  may  be  by  inheritance  or  descent,  by  will, 
or  devise,  by  gift  or  purchase,  or  sometimes  by  occupancy. 

Title  to  personal  property  may  be  by  descent,  by  will,  by 
gift,  by  purchase,  or  by  increase  of  flocks  and  herds,  by  labor 
or  manufacture,  or  by  finding. 


§  393.     Original  Title 

The  origin  of  the  right  to  personal  property  is  in  either 
occupancy  or  labor.  A  man  has  a  right  to  take  a  wild  animal 
or  a  fish,  seaweed,  or  an5rthing  still  in  a  state  of  nature  and 
which  belongs  to  no  one  else.  By  the  act  of  taking  the  article 
it  becomes  his,  and  the  law  will  protect  him  in  his  right 

The  right  to  property  through  labor  may  be  of  two  sorts. 
Where  a  man  works  for  another,  he  earns  wages  for  his 
services.  The  wages  which  he  receives  are  his  property,  but 
the  results  of  his  labor  belong  to  the  man  who  is  paying  for 
them.  On  the  other  hand,  where  a  man  not  working  for  an- 
other, by  his  labor  produces  something,  he  has  a  right  to  what 
he  has  produced.  For  instance,  where  a  man  writes  a  book, 
invents  a  labor-saving  device,  designs  a  dress,  or  draws  up 

433 


434 


REAL  AND  PERSONAL  PROPERTY 


plans  for  a  public  building,  the  book,  the  device,  the  design,  or 
the  plans  are  his  own  property. 

In  the  same  way,  the  right  to  property  may  be  acquired 
through  discovery.  If  a  man  should  discover  a  buried  treasure 
left  behind  by  Captain  Kidd  or  some  other  pirate,  the  treasure 
would  become  his.  When  lost  property  is  found  it  belongs, 
of  course,  to  the  true  owner  if  he  can  be  discovered.  If  he 
cannot,  the  finder  has  a  right  to  the  property.  The  owner 
of  lost  or  stolen  property  may  reclaim  such  property  from  its 
possessor  even  if  the  latter,  not  knowing  it  had  originally  been 
stolen,  paid  a  full  price  for  it. 

Note: 

I.     Never  buy  personal  property  where  there  is  a  doubt 
as  to  the  seller's  title. 

§d94.    Derived  Title 

Most  of  our  rights  to  personal  property  nowadays,  except 
those  that  come  from  our  own  labor,  come  to  us  by  title  derived 
from  someone  else.  We  either  buy  property  or  have  it  given 
to  us  by  someone  else.  Our  right  to  it  ie  then  derived  from 
the  former  owner. 

Property  may  be  bequeathed  by  will,  transferred  by  actual 
gift,  or  acquired  for  a  consideration.  Where  the  state  gives 
the  right  to  property  to  anyone,  it  is  known  as  a  grant.  In 
England,  all  gold  and  silver  mines  belong  to  the  king,  and 
he  grants  them  to  whom  he  wishes.  When  a  person  dies  with- 
out leaving  a  will,  his  personal  property  is  distributed  to  such 
of  his  nearest  relatives  as  are  legally  entitled  to  it  Those 
who  receive  it  in  this  way  take  title  by  descent.  When  personal 
property  is  left  to  anyone  by  will,  the  person  receiving  it  takes 
it  as  a  legacy  and  is  called  a  legatee. 

Note: 

I.     Generally,  only  an  executor  or  administrator  ap- 
pointed by  the  court  has  the  right  to  sell  personal 


TITLE  TO  PERSONAL  PROPERTY 


435 


property  belonging  to  the  estate  of  a  deceased 
person. 

§395.    Accession 

Another  way  of  acquiring  title  to  personal  property  is  by 
what  is  known  as  accession. 

Accession  is  the  addition  made  to  property,  either  by 
natural  increase  as  in  the  case  of  flocks  and  herds,  or  by  in- 
crease of  its  value  through  labor,  or  by  annexation,  as  in  the 
case  of  attaching  fixtures  to  realty.  The  addition,  whatever 
it  may  be,  belongs  to  the  owner  of  the  principal  piece  of 
property,  even  though  the  material  added  may  be  of  a  great 
deal  more  value  than  the  thing  itself.  A  piece  of  machinery 
might  be  entirely  rebuilt  and  would  still  belong  to  the  original 
owner  of  the  machinery. 

If  A  takes  some  of  his  own  property  and  some  of  B*s  inno- 
cently, through  a  mistake,  and  by  his  labor  combines  them  into 
an  entirely  new  article,  the  new  article  belongs  to  A,  although 
B's  property  put  into  the  new  product  was  of  a  great  deal 
more  value.  Even  though  the  original  property  belonged  en- 
tirely to  B,  if  A  has  made  an  entirely  new  thing  of  it,  the 
same  law  of  possession  holds  true.  For  instance,  if  A  should 
take  some  wood  belonging  to  B  and  make  it  up  into  boxes  or 
ladders,  etc.,  the  boxes  or  ladders  would  belong  to  A.  Of 
course,  he  could  be  compelled  to  pay  for  the  materials  that 
did  not  belong  to  him.  If,  on  the  other  hand,  A  knew  that 
the  property  did  not  belong  to  him,  the  new  article  will,  as  a 
usual  rule,  belong  to  B  who  owned  the  property  from  which 
it  was  made. 

§  396.    Confusion 

Sometimes  property  belonging  to  two  or  more  different 
people  becomes  mixed  together  so  that  it  is  impossible  to 
distinguish  it.    This  is  called  confusion  of  goods.    If  the  con- 


43^ 


REAL  AND  PERSONAL  PROPERTY 


TITLE  TO  PERSONAL  PROPERTY 


437 


fusion  happens  by  mistake,  each  party  is  entitled  to  a  share 
as  nearly  equal  to  his  original  share  as  it  is  possible  to  estimate. 
If  one  of  the  parties  deliberately  brought  about  the  confusion, 
he  may  secure  what  belongs  to  him  only  if  he  can  clearly  and 
unmistakably  prove  the  amount  to  the  satisfaction  of  the  court. 
If  he  cannot,  the  whole  belongs  to  the  innocent  party. 

§  397.    Kinds  of  Ownership 

Personal  property  may  be  owned  entirely  by  one  person, 
or  it  may  be  owned  by  two  or  more  persons  jointly  or  in 
common.    Ownership  may  be  absolute,  or  some  conditions  may 

be  attached  to  it 

Ownership  in  Common,  A  right  to  property  in  common 
means  that  the  two  or  more  owners  enjoy  the  use  of  the 
property  together  during  the  lifetime  of  all  of  them;  and  upon 
the  death  of  any  one  of  them,  those  who  the  law  says  are 
entitled  to  his  estate  have  a  right  to  come  in  and  enjoy  his 
share  of  the  property  together  with  the  surviving  owners.  If 
they  wish  at  any  time  to  divide  their  shares,  they  may  either 
agree  among  themselves  to  do  so  or  resort  to  an  action  at  law 
to  have  it  divided  for  them. 

Joint  Ownership,  When  the  ownership  is  joint,  both  of 
the  persons  enjoy  the  property  so  long  as  both  remain  living, 
and  upon  the  death  of  either  the  whole  property  goes  to  the 
survivor.  This  right  of  the  survivor  to  take  the  whole  prop- 
erty is  peculiar  to  joint  ownership  and  differentiates  it  from 
ownership  in  common.    On  this  account  personal  property  is 

rarely  held  jointly. 

Partnership  Ownership,  Partners  do  not  hold  any  per- 
sonal property  in  common.  Any  personal  property  used  in  the 
firm  business  is  partnership  property  and  is  owned  by  the 
firm.     (See  Chapter  XLV,  "Partnership  Property.") 

Absolute  or  Conditional  Ownership,  The  usual  ownership 
of  personal  property  is  absolute.    Personal  property  could  be 


bequeathed,  given,  or  sold  to  a  person  on  condition,  or  the 
ownership  could  be  qualified.   (See  §  95,  "Conditional  Sales.") 

Note: 

I.  It  is  rarely  that  any  common  or  joint  ownership  of 
personal  property  is  satisfactory  to  both  parties. 
The  sooner,  in  such  cases,  the  property  is  divided 
or  sold  or  one  party  is  bought  out,  the  better  the 
prospect  for  continued  friendship. 


I. 


2. 


Review  Questions 

What  is  meant  by  title?    Why  is  the  subject  important  in  law? 

How  may  title  to  land  be  acquired  ?    How  can  title  to  personal 

property  be  acquired? 
H  a  man  is  paid  $5  for  a  day's  labor  and  the  result  of  his  labor 

is  worth  $10,  to  whom  does  the  surplus  value  belong?    Why? 

3.  If  A  buys  an  automobile  and  later  B  proves  that  it  was  stolen 

from  him,  to  whom  does  it  belong? 

4.  After  a  man  dies,  to  what  extent  and  for  how  long  should  the 

law  allow  him  control  over  the  personal  property  he  owned 
when  alive? 

5.  What  is  acquisition  by  accession? 

6.  What  is  the  rule  in  case  of  confusion  of  property? 

7.  What  is  ownership  in  common? 

8.  What  is  joint  ownership? 

9.  When  is  estate  or  ownership  in  chattels  personal  not  absolute? 
10.    When  is  a  finder  entitled  to  keep  lost  property? 


TJtANSFER  OF  PERSONAL  PROPERTY 


439 


I 


:ili 


M 


ml 


I 


i| 


mil 

t 


CHAPTER  LVIII 
TRANSFER  OF  PERSONAL  PROPERTY 

§398.    Gift 

The  person  who  has  the  right  or  title  to  personal  property 
has  also  a  right  to  transfer  it  to  anyone  else.  He  may  give  it 
away  if  he  wishes  to  do  so.  He  may  do  this  either  by  actually 
handing  over  the  property,  or  by  making  out  a  bill  of  sale 
for  it  and  handing  that  over  to  the  person  to  whom  he  wants 
to  give  it  If  the  property  is  not  easy  to  handle,  it  is  not 
always  necessary  actually  to  hand  over  the  property  itself. 
Handing  a  person  the  keys  to  a  building,  or  a  savings  bank 
book,  or  a  bill  of  lading  is  equivalent  to  giving  the  person 
what  is  in  the  building,  or  the  money  on  deposit,  or  the  goods 
called  for  by  the  bill  of  lading.  The  giving  of  any  means  by 
which  the  recipient  can  obtain  the  property  is  sufficient. 

Gifts  made  causa  mortis,  that  is,  to  take  effect  in  case  of 
the  giver's  death,  are  treated  later  in  §  449. 


Note: 


When  a  gift  is  made,  the  fact  should  be  clearly  un- 
derstood by  both  parties. 


§  399.    Sale 

The  sale  of  personal  property  is  a  most  important  subject 
and  has  been  treated  at  length  in  Part  III  of  this  work. 

§  400.    Chattel  Mortgage 

Personal  property  may  be  mortgaged  as  well  as  real  estate. 
A  chattel  mortgage  is,  in  effect,  the  sale  of  a  chattel  with  the 

438 


condition  that  if  a  debt  or  other  obligation  is  paid  by  the  party 
who  makes  the  mortgage,  the  sale  shall  be  void  and  the  title 
shall  return  to  the  party  who  made  the  mortgage.  Such  a 
conditional  transfer  is  often  made  to  secure  a  debt  or  loan.  It 
is  usual  for  the  party  who  makes  the  mortgage,  called  the 
mortgagor,  to  retain  possession  of  the  property,  and  in  order 
to  protect  the  title  of  the  person  to  whom  the  mortgage  is 
made,  it  must  be  recorded  in  the  usual  office  of  registry  for 
the  county.  The  object  of  this  record  is  to  give  notice  to  other 
people  that  the  property  is  mortgaged.  Unless  this  record  is 
made,  the  person  to  whom  it  was  mortgaged  could  not  claim 
his  rights  in  the  property  if  it  were  sold  again  to  an  innocent 
third  party  who  did  not  know  of  the  mortgage.  A  chattel 
mortgage  is  good  usually  for  one  year,  or  other  period  stated 
in  the  local  statute,  but  may  be  renewed  when  about  to  expire. 

A  pledge  of  personal  property  is  the  transfer  of  the  actual 
chattel  as  security  for  a  debt  or  obligation.  A  chattel  mortgage 
saves  the  necessity  of  this  actual  transfer  of  the  property  and 
permits  the  mortgagor  to  have  the  use  of  the  property  at  the 
same  time  that  it  serves  as  security  for  the  loan.  Any  personal 
property  that  is  actually  in  existence  and  is  owned  by  the 
mortgagor  at  the  time  the  mortgage  is  made  can  be  mortgaged. 
A  growing  crop,  an  automobile,  household  furniture,  or  a 
stock  of  merchandise  can  be  mortgaged. 

Chattel  mortgages  are  invariably  in  writing  and  must  be 
recorded  in  order  to  give  notice  to  the  public.  Many  times  a 
chattel  mortgage  is  made  by  giving  an  absolute  bill  of  sale 
with  a  clause  providing  that  it  shall  become  null  and  void 
after  the  debt  secured  by  the  mortgage  is  paid.  The  property 
must  be  described  so  closely  that  third  parties  can  identify  it 
The  object  of  the  mortgage  is  to  give  notice  to  third  parties 
of  its  existence  and  this  could  not  be  done  unless  the  descrip- 
tion were  sufficiently  accurate  to  identify  the  property. 

The  object  of  the  chattel  mortgage  is  to  secure  a  debt  or 


ffln 


440        REAL  AND  PERSONAL  PROPERTY 

Other  obligation.  Hence,  the  mortgagee's  title  to  the  property 
does  not  become  absolute  unless  he  forecloses  the  mortgage. 
It  is  usual  to  provide  in  the  mortgage  that  if  the  debt  is  not 
paid  the  mortgagee  may  sell  the  property.  If  he  does  not  sell, 
the  mortgagor  has  a  right  to  pay  the  debt  and  mterest  and 
redeem  his  property.  Stocks  of  goods  are  often  mortgaged 
and  in  such  case  it  is  understood  that  the  mortgagor  niay  con- 
tinue to  sell  from  them  and  keep  the  stock  replem shed  and 
apply  the  profits  to  paying  off  the  mortgage  debt.  (  See  Chap- 
ter CIX,  Form  71.) 

§401.    Conditional  Sales 

The  difference  between  a  chattel  mortgage  and  a  condi- 
tional sale  is  as  follows: 

1 .  The  party  holding  and  owning  the  personal  property 

makes  a  chattel  mortgage  to  secure  the  due  pay- 
ment of  a  loan  or  other  obligation,  and^he  keeps 
the  property.  The  mortgagee  has  a  right  to  fore- 
close in  case  of  default. 

2.  The  party  who  makes  a  conditional  sale  sells  the 

chattel  and  transfers  the  chattel  over  to  the  pur- 
chaser. (See  §  400.)  The  vendor  has  a  right 
to  repossess  in  case  of  default 

Mo  tcs ' 

I.     A  chattel  mortgage  must  be  in  writing  and  must 

be  recorded. 
•       2.     A  chattel  mortgage  must  conform  to  the  local  law. 


TRANSFER  OF  PERSONAL  PROPERTY 


I. 


2. 


Review  Questions 

What  IS  a  gift?    Can  a  promise  to  make  a  gift  be  enforced? 

Can  a  gift  be  recovered  if  once  made? 
How  is  the  title  to  personal  property  transferred?    When  sale 

of  merchandise  is  made,  when  does  title  pass? 


441 


3.  What  is  the  object  of  a  chattel  mortgage?  What  is  the  procedure 

in  your  state  as  to  chattel  mortgages? 

4.  A  gives  B  a  chattel  mortgage  on  a  Marmon  car.     It  is  filed  in 

Westchester  where  A  lives.  A  takes  the  car  over  into  Con- 
necticut, and  sells  it  to  C  who  lives  there.  Can  B  enforce 
his  right  under  the  mortgage  ? 

5.  How  does  a  chattel  mortgage  differ  from  a  conditional  sale  with 

a  right  to  possess? 

6.  What  must  the  holder  of  a  chattel  mortgage  do,  in  case  of  default 

in  repayment,  to  make  his  title  good  ? 


ESTATES  IN  REAL  PROPERTY 


443 


CHAPTER  LIX 

ESTATES  IN  REAL  PROPERTY 

§  40a.    The  Nature  of  Real  Property 

By  real  property  is  meant  land  and  anything  permanently 

attached  to  it.  ^^^  nf  the  land 

Buildings  and  fences  are  regarded  as  part  of  Ae  land 

though  they  n,ay  become  P^-"tin'Z2h  gl  oTthe^! 
the  land  severs  them  from  it.  Thmgs  which  grow 
selves  or  which  remain  year  after  year,  such  as  trees,  perennial 
pLs.  etc..  are  regarded  as  part  of  the  ^^^^^^^^  ^  ^^^ 
remain  attached  to  it.  but  after  they  are  cut  d«J"  *ey  ^H^cc^m^^^ 
personal  property.  The  same  is  true  of  ice.  stone  etc. .  after 
U  is  cut  or  quarried,  it  becomes  personal  property. 

Crops  which  have  to  be  planted  every  year  and  wh.di  a  e 
^erefo  e  the  fruits  of  labor  Jther  •;;-nhe  ^nd  ^^ - 

kss Tey  have  been  gathered  before  he  is  required  to  give  up 

'^'  The  right  to  land  includes  everything  underneath  it  to  the 
center  of  the  earth  except  such  minerals  as  the  government 
Sy  claim.    In  some  countries  the  government  has  a  ^^^^^ 

the  gold,  silver,  and  more  ^^^''^^\'^''''^''^\2^ 
property  also  includes  the  air  above  the  property.    Before  the 
dlTof  flying  machines,  the  right  to  the  air  was  neither  en- 
forced nor  questioned,  but  it  is  very  doubtful  whether  a  man 

442 


could  prosecute  an  aviator  for  trespass  if  he  flew  over  his 
property.  At  any  rate  the  owner  would  have  to  prove  dam- 
ages. 

In  studying  the  legal  aspects  of  the  ownership  of  land, 
it  is  necessary  to  distinguish: 


I. 

2. 


The  property  itself.  This  may  be,  for  purposes  of 
illustration,  an  apartment  house. 

The  estate  in  the  property.  An  estate  in  real  prop- 
erty is  the  interest  which  the  person  in  pos- 
session holds.  Several  persons  may  hold  different 
estates  simultaneously;  for  example,  there  may  be 
the  following  estates  in  an  apartment  house: 

(a)  An  estate  in  fee  simple  held  by  an  owner 

who  may  have  leased  the  land  for  99 
years  reserving  a  ground  rent. 

(b)  A  long-term  lease  held  for  99  years  by  a 

lessee  who  may  have  put  up  the  building 
and  leased  it  to  many  tenants, 
(c)     Many  short-term  leases  held  by  the  sub- 
tenants.   All  of  these  parties  have  estates 
or  interests  in  the  property  at  the  same 
time. 
The  title  to  real  property.    This  is  not  the  property 
and  is  not  the  estate  in  the  property,  but  the 
means  by  which  possession  was  acquired  and  is 
held.    For  instance,  in  the  case  of  the  apartment 
house: 

(a)  The  owner  who  receives  the  ground  rent  took 

title  by  will,  inheritance,  or  deed. 

(b)  The  party  who  put  up  the  building  took  title 

by  a  lease  for  99  years. 

(c)  The  tenants  take  title  to  their  several  apart- 

ments by  short-term  leases. 


Jk  M  Jl... 

■fit 


REAL  AND  PERSONAL  PROPERTY 


§  403.    Right  to  Real  Property 

Under  certain  established  rules,  land  or  real  foperty  may 
be  held  or  owned  by  private  citizens.    It  may  be  bought,  it 
may  be  inherited  or  transmitted  by  will.    If  one  can  occupy 
unclaimed  land  long  enough  and  escape  dispossession  by  some- 
one  who  advances  a  prior  claim,  he  can  stiU  get  a  title  by 
occupancy.    It  is  now  recognized,  however,  that  the  nght  of 
the  owner  is  always  subject  to  certain  rights  possessed  by  his 
neighbors  and  the  public.     A  man  cannot  keep  a  pigsty  or 
nin  a  glue  factory  on  his  premises  in  the  midst  of  .cr^^^^ 
city     In  some  cities  there  is  a  limitation  on  the  height  to 
which  buildings  may  be  erected.    Also   there  exists  what  is 
known  as  the  power  of  "eminent  domain,"  that  is,  the  power 
inherent  in  the  government  to  take  private  property  for  the 
use  and  benefit  of  all,  as  in  the  building  of  roads  or  railways 
In  such  cases,  the  owner  is  compensated,  but  he  cannot  prevent 
the  action  of  the  government.    Finally,  the  state  has  the  power 
to  tax,  and  may  some  day  carry  this  to  such  an  extent  as  to 
take  away  the  entire  private  value  of  the  land. 

§404.    Estates  in  Real  Property 

A  person  may  own  real  property  outright.  This  is  termed 
an  "estate  in  fee  simple."  Or  he  may  possess  the  right  to  it 
for  his  own  life  or  that  of  another.  This  last  is  called  an 
estate  for  life."  Either  of  these  estates  in  fee  simple  or  for 
Ufe  is  regarded  as  real  property.  If  a  man  had  a  right  to  a 
piece  of  land  "as  long  as  A  or  B  or  either  of  them  shall  hve 
L  would  have  a  life  estate  for  two  lives.  These  are  called 
"freehold  estates"  and  at  common  law  were  held  to  be  of 
greater  dignity  than  an  estate  for  years.  Any  other  right 
to  the  possession  of  land  is  regarded  as  personal  property, 
even  though  it  may  be  a  lease  for  a  term  of  years  much  longer 

than  anyone's  life.  .  t         t. 

The  holder  of  a  life  estate  is  bound  to  make  such  repairs 


ESTATES  IN  REAL  PROPERTY 


445 


as  are  necessary  to  prevent  the  property  from  falling  into 
decay,  but  he  is  not  bound  to  make  improvements,  or  replace 
buildings  destroyed  through  no  fault  of  his,  or  pay  the  prin- 
cipal of  any  incumbrance,  though  he  must  pay  the  interest. 
On  the  other  hand,  he  must  do  nothing  to  waste  the  estate, 
such  as  stripping  it  of  timber  or  opening  new  mines  upon  it, 
though  he  may  work  opened  mines  and  cut  a  moderate  amount 
of  timber. 

§405.    Remainders  and  Reversions 

When  the  life  estate  or  life  estates  end,  the  final  ownership 
of  the  property  must  either  be  given  to  someone  else  or  revert 
to  the  original  owner  or  his  heirs.  If  the  estate  that  is  left  is 
given  to  someone  else,  it  is  called  "an  estate  in  remainder"; 
if  it  comes  back  to  the  original  owner,  it  is  called  a  "reversion." 

When  the  original  owner  is  dead,  the  reversion  comes  back 
to  his  heirs.  There  may  be  remainders  and  reversions  even 
after  property  has  been  leased  for  many  years. 

Remainders  and  reversions  involve  the  absolute  ownership 
of  property. 

§406.    Vested  and  Contingent  Remainders 

If  the  person  who  is  to  take  the  remainder  after  one  or 
more  life  estates  is  certain,  and  the  fact  that  either  he  or  his 
estate  will  get  it  finally  is  also  certain,  it  is  known  as  a  "vested 
remainder."  Although  he  may  never  live  to  enjoy  the  prop- 
erty, his  right  is  certain,  and  if  he  dies,  his  heirs  will  inherit. 

If,  on  the  other  hand,  the  person  who  is  to  take  the  re- 
mainder is  not  certain  but  can  only  be  known  later;  or  if  the 
remainder  is  left  to  a  person  who  is  certain,  but  on  a  condition 
which  may  never  happen,  the  remainder  is  contingent.  For 
example,  a  man  might  leave  property  to  his  son  for  life  and 
after  that  to  his  grandchildren,  although  he  had  no  grand- 
children at  the  time  of  making  his  will;  in  such  a  case  the 


^6        KEAL  AND  PERSONAL  PROPERTY 

u    «—  fr.  ^^l^ef  the  remainder  would  not 
person  or  persons  who  are  to  take  "»«/«"*  , .  . 

be  certain,  but  if  any  were  afterwards  bom  they  ^ouW  have 
De  ccridui,  u  1. ,     nr  ViP  tnipht  leave  the  remainder  to 

a  right  to  the  property.    Or  he  migni  ^^«  "  ,     .     . 

such  of  his  grandchildren  as  were  hvmg  at  his  son  s  death 
:^?it  wodd'be  uncertain,  until  his  son's  death,  which  of  his 
grandchildren  would  get  the  property.  ♦?,.  nrnnertv 

On  the  other  hand,  the  person  who  is  to  take  the  prope  J^ 
miehTbe  perfectly  certain,  but  the  event  might  be  contingent. 
S  for  taSnce.  if  a  man  should  leave  property  to  his  nephew 
Sr  Hfe^n.;  remainder  to  his  niece  if  she  were  then  hv.ng^ 
R  is  tiin  who  his  niece  is.  but  it  is  uncertain  whether  she 
will  Uve  to  get  the  property. 

8407.    Executory  Devises 

An  executory  devise  is  an  estate  in  land  directed  to  take 
effect  in^rtLre.  without  the  ^--'^  P^^^,  ;:^;;^ 
i„„„ediate  estate.  Strictly  a  man  cannot  t'^^^^f  °P^^ 
Wmeans  of  a  deed  which  is  to  take  effect  at  some  future 
toe  The  title  to  the  property  passes  when  the  deed  is  de- 
Wred  -if  the  deed  is  not  delivered,  it  is  no  deed  at  all.  Such 
Sr'e  ^ate  could  be  created  only  by  deeding  the  property 
to  a  trustee  to  hold  untU  the  time  appointed  for  the  future 
iLT-vest."  In  such  case  the  future  estate  would  be  an 
estate  in  remainder  and  not  an  executory  devise. 

Burhe  may  leave  it  by  wUl  in  this  way.  mthout  an  in- 
.  J^HJ^te  estate  provided  that  the  future  time  at  which  the 
Stte  ?o^rty  is  to  "vest."  or  in  other  words  become 
abilute  in  the^son  to  whom  it  is  given,  is  not  delayed 
tter  than  the 'law  permits.    Such  a  bequest  .s  termed  an 

"executory  devise." 


ESTATES  IN  REAL  PROPERTY 


447 


8408     Time  Limit  to  Effect  an  Executory  Devise 

The  legal  limit  for  an  executory  devise  to  take  effect  .s 
usJuy  vvithin  the  time  measured  by  the  life  or  the  lives  of 


persons  in  existence  at  the  time  the  will  was  made.  For  in- 
stance, a  man  might  leave  property  to  his  infant  son  to  be  his 
on  the  death  of  three  other  persons  then  living.  The  title  of 
the  property  will  then  vest  within  the  period  of  three  lives. 

In  England,  a  man  named  Thelluson  left  his  property  tied 
up  for  a  long  period,  the  income  to  be  added  to  the  principal 
and  the  interest  compounded.  At  the  end  of  the  period  the 
entire  fortune,  which  would  then  amount  to  an  enormous  sum, 
was  to  be  delivered  to  his  heir  in  the  direct  line,  which  would 
make  him  the  richest  man  in  all  England.  The  heirs  who  were 
left  out  took  the  matter  to  the  courts  and  the  highest  legal 
authority  in  England,  the  House  of  Lords,  decided  that  the 
arrangement  was  contrary  to  public  policy  and  should  not  be 
carried  out.  The  principle  established  in  this  case  has  pre- 
vailed both  in  England  and  in  this  country  and  no  property 
can  be  tied  up  in  any  way  except  for  the  limited  period  pre- 
scribed by  the  law.    This  is  known  as  the  law  of  perpetuity. 

§  409.    Dower  and  Curtesy 

At  common  law  a  wife  was  entitled  upon  the  death  of  her 
husband  to  a  life  estate  in  one-third  of  any  real  property 
which  he  owned  during  their  marriage.  This  right  was  known 
as  "dower."  In  consequence,  when  a  married  man  sells  real 
estate,  it  is  necessary  that  his  wife  join  with  him  in  the  deed 
and  that  she  expressly  release  her  dower  right. 

If  there  was  a  child  born  alive,  the  husband  was  entitled 
upon  the  death  of  the  wife  to  a  life  estate,  not  in  one-third 
but  in  the  whole  of  the  wife's  real  property.  This  right  was 
known  as  "curtesy." 

Many  states  have  abolished  both  dower  and  curtesy.  In 
New  Jersey  each  is  given  a  life  estate  in  one-third  of  the 
other's  real  property  in  place  of  dower  or  curtesy.  Both 
dower  and  curtesy  are  life  estates  and  on  the  death  of  the 
person  entitled  to  such  an  estate  the  property  is  free  from  any 


44^ 


REAL  AND  PERSONAL  PROPERTY 


claim  from  his  or  her  heirs  or  representatives.  (  See  Chapter 
LXXIL) 

* 

§  410.    Homestead 

A  homestead,  that  is,  the  family  residence  and  a  certain 
quantity  of  land  adjoining  it,  is  usually  exempt  by  statute  law 
from  all  debts  except  mortgages,  purchase-money  liens,  and 
mechanics'  liens.  An  old  homestead  may  be  given  up  and  a 
new  one  acquired ;  or  a  homestead  right  may  be  lost  by  the 
wife  signing  it  away  in  a  deed.  In  some  states  any  home- 
stead, no  matter  how  valuable,  is  exempt,  but  in  others  there 
is  a  limitation  of  value,  and  the  excess  value  may  be  taken 
by  creditors. 

1 411.    Easements 

These  are  rights  to  make  use  of  the  land  of  another  in 
some  way,  as  by  a  right  of  way  over  the  fields  of  one's  neigh- 
bor,  or  the  right  to  restrict  another  from  erecting  buildings 
which  shut  off  light  and  air,  or  the  right  to  have  a  drain  pipe 
under  another's  land,  or  the  right  to  have  a  party  wall  on  the 
boundary  line.  When  these  rights  are  included  in  a  deed  of 
property  they  follow  the  property  deeded  and  will  pass  with 
it  to  any  subsequent  owners.  For  instance,  a  man  might  want 
to  sell  a  lot  in  the  middle  of  his  farm.  In  order  to  make  it 
salable  he  gives  the  purchaser  a  right  of  way  over  the  rest  of 
the  farm  between  this  lot  and  the  highroad.  This  right  of 
way,  which  was  the  inducement  to  the  sale  and  is  necessary 
to  the  enjoyment  of  the  property  sold,  passes  along  with  tiie 
property  to  the  next  owner.  It  is  inseparably  connected  with 
the  property  and  is  regarded  as  a  part  of  it,  and  hence  is 
considered  real  property. 

If,  however,  a  right  of  this  sort  is  given  by  deed  separately 
from  the  property,  it  belongs  solely  to  the  person  to  whom 
it  is  given  and  cannot  be  assigned  to  anyone  else. 


ESTATES  IN  REAL  PROPERTY 


449 


Mere  oral  permission  to  go  across  another's  property,  to 
pick  apples  from  his  trees,  etc.,  is  a  license,  and  the  owner  may 
take  it  away  at  any  time. 

§413.    Joint  Tenancies  and  Tenancies  in  Common 

The  word  "tenancy"  in  legal  parlance  means  ownership  or 
estate  in  land.  It  is  not  limited  to  the  renting  of  land,  but 
means  a  holding  for  years  or  for  life.  Any  estate  in  land  may 
be  owned  by  two  or  more  persons  at  the  same  time.  They 
hold  it  either  in  joint  tenancy  or  tenancy  in  common  accord- 
ing to  the  deed  or  instrument  from  which  they  get  their  title. 
A  single  owner  would  hold  in  severalty. 

In  joint  tenancy,  on  the  death  of  one  of  the  owners,  the 
remaining  owners  take  the  property,  the  entire  property  going 
to  the  last  survivor. 

In  tenancy  in  common,  if  one  of  the  several  tenants  dies, 
his  heirs  have  a  right  to  share  the  ownership  of  the  property 
with  the  remaining  tenants. 

Joint  tenants  or  tenants  in  common  may  divide  the  prop- 
erty between  them  by  agreement.  If  they  cannot  agree,  they 
may  bring  what  is  known  as  a  partition  action  and  have  the 
court  divide  the  property  between  them. 


§  413.    Trusts 

When  one  person  holds  property  for  the  benefit  of  an- 
other, he  is  said  to  hold  it  in  trust.  The  one  who  holds  prop- 
erty is  called  a  trustee.  The  one  for  whom  it  is  held  is  called 
the  beneficiary,  or  in  legal  terms  the  cestui  que  trust. 

A  corporation  formed  for  holding  property  as  trustee  is 
called  a  trust  company. 

A  person  may  hold  any  of  the  estates  that  have  been  men- 
tioned, except  dower  and  curtesy,  in  trust  for  another  or  for 
several  others.    Some  states  do  not  allow  trusts  which  would 


4SO 


REAL  AND  PERSONAL  PROPERTY 


ESTATES  IN  REAL  PROPERTY 


451 


II 


prevent  creditors  from  enforcing  their  claims  against  the  prop- 
erty, except  for  married  women  and  children  under  age. 
Trusts  to  accumulate  income  for  more  than  a  limited  period 
are  also  prohibited.  (See  §  407)  Trusts  for  charitable  pur- 
poses of  more  than  a  certain  amount  of  a  person's  entire 
estate  cannot  be  created  by  will  in  many  states,  if  the  person 
is  survived  by  husband,  wife,  or  children.  Many  states  also 
restrict  the  amount  of  property  which  a  charitable  organization 

may  hold. 

If  a  person  pays  the  price  for  land  and  another  takes  the 
title  to  it,  unless  a  gift  was  intended,  the  person  taking  the 
title  holds  it  in  trust  for  the  one  who  paid  for  it.  Or  if  a 
person  obtains  property  from  another  by  representing  that  he 
is  going  to  hold  it  for  the  benefit  of  a  third  party,  the  law 
will  make  him  a  trustee  for  that  third  party. 

Property  is  often  deeded  to  trustees  to  hold  as  security 
for  the  payment  of  debts,  notes,  or  bonds.  The  subject  is 
considered  more  fully  in  Chapter  LXXXI. 

A  trustee  or  trustees  take  title  to  real  property  by  will  or 
by  a  deed,  executed  and  recorded  as  any  other  instrument 
conveying  land  in  due  form.  If  such  deed  were  informal, 
for  example,  not  acknowledged,  it  could  not  be  recorded,  but 
as  between  the  parties  would  be  valid.  The  trustees  would 
take  title  as  would  any  grantees  and  their  rights,  duties,  and 
powers  are  as  defined  and  limited  in  the  instrument  creating 
the  trust.  They  could  not  sell  or  mortgage  the  property  unless 
so  authorized,  nor  could  they  delegate  any  of  their  duties. 
If  one  of  several  trustees  dies,  his  survivors  could  act,  but 
not  elect  a  successor  unless  specifically  authorized  to  do  so. 
If  a  sole  trustee  should  die,  or  all  of  several  trustees,  and  no 
provision  were  made  in  the  deed  of  trust  or  will  for  such  an 
emergency,  the  trust  would  not  fail  but  the  interested  parties 
could  apply  to  a  court  having  jurisdiction  to  name  trustees  to 
fill  any  vacancies. 


Notes: 

1.  Generally  it  is  necessary  to  consult  a  lawyer  before 

transferring  an  estate  in  real  property  either  by 
deed  or  will. 

2.  Never  buy  real  property  without  finding  out  whether 

the  person  selling  is  married  and,  if  so,  whether 
the  law  requires  the  husband's  or  wife's  consent 


Review  Questions 

1.  What  is  real  property?    What  is  the  rule  as  to  growing  things? 

2.  What  is  the  meaning  of  the  legal  term  "estates  in  land"?    What 

is  meant  by  "title  to  land"  ? 

3.  What  is  title  by  occupancy?     What  is  the  right  of  eminent 

domain?    Is  there  any  limit  on  the  power  of  the  state  to  tax 
land? 

4.  What  are  the  freehold  estates  in  land?    What  are  estates  less 

than  a  freehold? 

5.  What  is  a  remainder?    A  reversion? 

6.  What  is  an  executory  devise?    A  contingent  remainder? 

7.  In  your  state  how  long  can  a  man  by  will  or  deed  tie  up  real 

property?     Why  are  perpetuities  abhorrent  to  the  law? 
8*    What  is  dower  ?    What  is  curtesy  ?    When  the  grantor  in  a  deed 

is  maj-ried,  why  should  both  husband  and  wife  join  in  the  deed? 
9.     What  is  the  homestead  exemption  in  your  state  ? 

10.  What  are  the  most  usual  easements?    Is  oral  permission  to  go 

across  another's  land  an  easement? 

11.  What  is  a  trustee?    What  is  a  cestui  que  trust?    For  what  pur- 

poses may  a  trust  be  created  in  your  state? 

12.  What  does  "tenancy"  mean  ?    Distinguish  "tenancy  in  common" 

from  "joint  tenancy"  and  "tenancy  in  severalty." 

13.  Does  a  trustee  hold  title?    Has  he  power  of  sale? 

14-     May  a  trustee  give  a  valid  mortgage  on  a  trust  estate? 

15*    If  a  deed  of  trust  is  unacknowledged  what  is  the  effect:   (a) 

as  to  putting  on  record;  (b)  as  between  grantor  and  grantee? 
16.     If  all  trustees  die,  who  holds  title  and  who  executes  trust?    May 

a  trustee  for  the  management  of  certain  properties  delegate 

his  duties? 


TITLE  TO  REAL  PROPERTY 


453 


CHAPTER  LX 

TITLE  TO  REAL  PROPERTY* 

S414.    Original  Title 

The  right  to  the  ownership  of  real  property  was  acquired 
in  the  first  place  by  taking  possession  of  it  and  keeping  it. 
This  is  title  by  occupancy.  To  a  certain  extent  this  right  still 
exists  in  parts  of  the  United  States,  where  unoccupied  lands 
may  be  taken  up  by  living  on  them  for  a  certain  length  of 
time  and  filing  a  claim  with  the  government. 

Where  property  has  been  in  open  and  undisturbed  (con- 
tinuous) possession  of  a  party  under  a  claim  of  right  for  a 
certain  length  of  time  prescribed  by  law,  generally  about 
twenty  years,  and  when  his  possession  is  undisputed  by  anyone, 
the  possessor  acquires  a  good  title  to  it.  This  is  termed  "title 
by  prescription,"  or  by  "adverse  possession."  If  any  person 
who  might  have  claimed  the  property  was  imder  age,  insane, 
or  absent  from  the  country  during  any  part  of  the  twenty 
years,  he  would  be  allowed  in  addition  the  period  of  time  so 
lost,  before  his  claims  would  be  barred.    (  See  §  ^2. ) 

I.  It  is  not  safe  to  rely  on  title  by  prescription  in  buy- 
ing property.  There  may  have  been  something  to 
prevent  the  running  of  the  statute  of  limitations. 

§415.    Acquired  Title 

The  ownership  of  real  property  today  is  usually  by  title 
acquired  from  someone  else.     It  may  be  acquired  either  by 

»FoT  fofiiii  of  deed,  mortgage,  mod  lease,  see  Chapter  CIX,  Fonnt  70.  73. 


deed,  will,  or  inheritance.  Any  transfer  of  real  property  must 
conform  to  the  laws  of  the  state  where  the  real  estate  is 
located.  When  real  property  is  left  by  will,  it  is  said  to  be 
devised  and  the  person  who  so  receives  it  takes  by  devise. 

Title  by  Lease,  Much  real  property  is  held  by  lease,  but 
all  leases  are  held  to  be  personal  property.  A  lease  may  be 
for  a  long  period,  say  nine  hundred  and  ninety-nine  years,  or 
may  be  from  month  to  month.  Leases  are  usually  written 
instruments  and  are  treated  at  greater  length  in  Qiapter  LXII. 

Title  by  Deed,  The  formalities  necessary  to  transfer  title 
to  land  by  deed  are  taken  up  at  length  in  Chapter  LXI. 

Title  by  Devise,     (See  Chapter  LXI  on  this  subject.) 

Title  by  Inheritance.  (When  the  owner  of  real  property 
dies  without  making  a  will,  the  law  of  the  state  where  the 
property  is  situated  prescribes  to  whom  it  shall  go.  Their  title 
is  by  inheritance.     (See  Chapter  LXIII  on  this  subject.) 


I. 


2, 


Review  Questions 

What  is  title?    How  long  must  a  person  occupy  land  to  get  title 

by  prescription? 
What  are  the  usual  methods  of  acquiring  permanent  title?    What 

is  the  difference  between  a  deed  and  a  lease? 
When  a  man  dies,  how  is  it  determined  what  happens  to  his  real 

estate  ? 


TRANSFER  OF  REAL  PROPERTY 


455 


ill 


CHAPTER  LXI 
TRANSFER  OF  REAL  PROPERTY 

§  416.    Conveyance  of  Real  Property 

A  sale  of  real  property  must  always  be  carried  out  by 
means  of  a  document  called  a  deed  signed  by  the  seller.  If 
signed  by  an  agent,  the  agent  should  be  authorized  under  seal 
to  act  for  the  seller.  The  seller  or  vendor  is  designated  as 
the  grantor,  and  the  buyer  as  the  grantee. 

Transfer  of  real  property  may  also  take  place  through  the 
death  of  the  owner,  that  is,  by  descent,  or  through  a  devise 
made  by  will.  If  he  leaves  children,  grandchildren,  or  great- 
grandchildren, they  have  the  first  right  to  the  property.  If  a 
man  dies  without  children,  leaving  his  father  surviving  him, 
the  father  takes  the  real  estate.  If  his  father  is  dead,  the 
property  is  divided  between  his  mother,  brothers,  and  sisters. 
Grandparents  may  take  by  inheritance  if  none  of  the  relatives 
mentioned  above  are  left  surviving;  or  if  grandparents  are 
dead,  undes  and  aunts  may  inherit. 

In  all  of  these  cases,  if  a  man  leaves  a  wife  surviving  him, 
she  is  entitled  to  her  dower  right  in  one-third  of  the  real 
property  for  life.  The  other  relatives  take  their  rights  in  the 
property  subject  to  the  wife's  dower  right  and  have  but  two- 
thirds  until  she  dies.  In  most  states  the  laws  of  inheritance 
arc  as  given  here.  This  subject  is  treated  more  fully  in  Chap- 
ter LXIII. 

Real  property  is  conveyed  by  a  deed  in  writing.  The  deed 
must  contain  a  full  and  accurate  description  of  the  property 
by  metes  and  bounds,  or  by  giving  the  legal  subdivision,  or 
subdivisions;  it  should  state  from  whom  and  in  what  manner 

454 


the  grantor  obtained  the  property;  and  if  conveyed  to  him 
by  a  deed,  where  the  former  deed  is  recorded.  The  deed  must 
be  signed  by  the  grantor  and  acknowledged  before  a  notary, 
justice  of  the  peace,  or  a  commissioner  of  deeds  by  the  party 
giving  the  conveyance,  and  by  the  husband  or  wife  of  the 
grantor  if  the  law  of  the  state  requires  this  formality  in  order 
to  cut  off  dower,  curtesy,  or  homestead  rights.  (For  acknowl- 
edgments, see  Forms  9  and  10.) 

A  deed  should  also  be  under  seal.  This  today  is  a  pure 
formality.  Red  wafers  are  generally  used.  In  New  York 
State  the  letters  L.  S.,  standing  for  the  Latin  words  locus 
sigilli — "the  place  of  the  seal" — which  were  originally  used 
to  designate  the  place  to  affix  the  seal,  are  enough. 

In  order  to  take  effect,  the  deed  must  be  delivered  into  the 
hands  of  the  person  to  whom  it  is  assigned  or  into  the  hands 
of  an  agent  whom  the  assignee  has  authorized  to  receive  it. 

A  deed  is  presumed  to  take  effect  from  delivery.  Some- 
times a  deed  is  fully  executed  and  is  then  placed  in  custody 
of  a  third  person  or  of  a  trust  company  to  be  delivered  when 
the  purchaser  makes  a  certain  payment  or  fulfils  other  condi- 
tions. A  deed  or  other  document  so  placed  is  said  to  be  in 
escrow. 

There  are  two  kinds  of  deeds  in  general  use — quitclaim 
and  warranty.     A  quitclaim  deed  merely  releases  the  rights 
which  the  grantor  has  in  the  property,  whatever  those  may  be. 
Notes: 

I.     It  is  necessary  to  consult  the  laws  of  the  state  in 
which  real  property  is  situated  to  know  the  exact 
formalities  of  transfer. 
Where  the  grantor  is  married  the  marital  partner 

should  always  join  in  the  deed. 
The  laws  on  inheritance  differ  to  some  extent  in  the 
various  states.    In  order  to  determine  who  are  a 
man's  heirs  it  is  necessary  to  consult  the  statutes. 


2. 


iH 


45^ 


REAL  AND  PERSONAL  PROPERTY 


TRANSFER  OF  REAL  PROPERTY 


457 


§417.    Warranty  Deed 

In  a  warranty  deed,  the  seller  when  conveying  the  property 
warrants  that  the  tide  is  free  from  all  defects  which  might 
disturb  the  purchaser  in  the  enjoyment  of  the  property  later, 
and  that  the  grantor  will  protect  the  purchaser  m  his  rights 
and  execute  any  further  instruments  that  may  be  necessary 
to  secure  them.     (See  Form  72.) 

Where  the  person  giving  the  deed  wishes  to  convey  the 
property  outright  and  to  give  absolute  ownership,  the  words 
"to  him  and  his  heirs  forever"  must  be  used.  On  the  other 
hand,  if  he  wishes  to  convey  only  a  life  estate  or  other  hmited 
interest,  these  limitations  must  be  clearly  stated,  or  the  grantee 
will  take  the  same  interest  that  the  grantor  had  in  the  property. 
(See  Chapter  CIX,  Form  73.) 

The  essential  parts  of  a  warranty  deed  are  as  follows: 

1.  The  parties 

2.  The  consideration  and  grant 

3.  Description 

4.  Habendum  clause 

5.  Covenants 

6.  Signatures  and  seal 

7.  Attestation 

8.  Acknowledgment 

9.  Delivery 

A  warranty  deed  under  the  old  common-law  forms  is  a 
rather  cumbersome  instrument.  In  some  states  this  form  is 
still  used,  but  in  many  states  a  short-form  deed  has  been 
prescribed  by  statute.    Where  this  is  the  case,  the  instrument 

is  much  simpler.  .       j  ^ 

It  is  necessary,  when  real  property  is  to  be  transferred,  to 
ascertain  what  form  is  used  in  the  state  in  which  the  land  is 
located.    The  following  essentials  are  to  be  considered  in  every 

deed: 


1.  The  parties  must  be  designated  with  certainty.  The 
usual  way  to  do  this  is  to  state  both  the  surname  and  Christian 
name  with  any  middle  initial  of  each  party  and  the  place  of 
residence  of  each. 

2.  The  consideration  and  granting  clauses  are  placed 
briefly  in  the  short  form  as  follows :  "In  consideration  of  the 
sum  of  four  thousand  ($4,000)  dollars  in  hand  paid,  conveys 

and  warrants  to ."  The  more  cumbrous  verbiage  of  the 

common  law  will  be  found  in  Form  y^. 

3.  Th^  description  may  be  by  metes  and  bounds  or  may 
merely  name  the  legal  subdivision.  Examples  of  both  kinds 
are  shown  in  the  forms  given. 

4.  The  habendum  clause  follows  and  in  its  briefest  form 
reads:  "To  have  and  to  hold  the  said  premises  unto  the  said 
party  of  the  second  part,  his  heirs  and  assigns  forever." 

5.  The  covenants  follow.  These  are  given  in  the  longer 
form.     (See  Form  73.) 

6.  The  testimonium  clause  followed  by  the  signatures 
and  seals  of  the  party  or  parties  who  are  grantors  would 
come  next. 

7.  An  attestation  clause  is  next  in  order,  in  those  states 
where  a  witness  or  witnesses  are  required. 

8.  The  acknowledgment  will  follow,  as  indicated  in  the 
forms.  The  form  of  the  acknowledgment  and  rules  as  to  its 
execution  differ  in  each  state,  and  a  deed  must  in  all  matters 
conform  to  the  law  of  the  state  where  the  land  is  located. 

9.  Delivery  is  the  final  act.  A  deed  without  delivery 
would  be  no  deed  and  would  give  no  one  any  rights.  The 
delivery  is  an  absolutely  essential  feature  of  the  deed. 

§418.    Records  of  Deeds 

A  deed  which  has  been  delivered  is  good  as  between  the 
two  parties  concerned,  the  seller  and  the  purchaser  of  the 
property,  but  in  order  to  make  the  purchaser's  right  good 


4S» 


REAL  AND  PERSONAL  PROPERTY 


against  all  claims  the  deed  must  be  recorded.  It  is  usual  for 
each  county  to  have  an  office  for  the  recording  of  all  deeds 
affecting  real  property  located  in  that  county. 

The  laws  in  each  state  usually  provide  for  the  record  of 
instruments  "that  create,  transfer,  mortgage,  or  assign  inter- 
ests in  real  property,  whether  legal  or  equitable,  or  by  which 
the  title  to  any  real  property  is  affected."  * 

It  is  of  vital  importance  that  a  deed  be  recorded.  If  a 
deed  is  not  recorded  and  the  seUer  executes  another  deed  which 
is  filed,  or  a  creditor  of  the  seller  secures  a  judgment  against 
the  seller,  the  holder  of  the  first  deed  has  no  claim  to  the  land. 
All  he  can  do  is  to  bring  suit  against  the  seller  for  damages. 
The  record  of  a  deed  is  absolutely  essential  to  give  a  good  title 
to  the  holder. 

§  419.    Restrictions  in  Deedr 

Restrictions  in  deeds  are  generally  made  for  the  benefit  of 
the  surrounding  property.  They  are  legal  and  binding  so  long 
as  they  are  not  against  public  poHcy ;  for  instance,  a  restriction 
for  the  purpose  of  creating  a  monopoly  or  restricting  com- 
petition would  be  illegal.  Usually  such  restrictions  relate  to 
the  character  of  buildings  which  may  be  erected  in  a  certain 

locality. 

If  the  deed  provides  that  in  case  the  grantee  violates  the 
restriction,  the  property  is  to  revert  to  the  grantor  or  his  heirs, 
then  any  such  violation  destroys  the  right  of  the  grantee ;  if 
the  deed  does  not  so  provide,  damages  must  be  paid  for  breach 
of  the  agreement,  but  right  to  the  property  is  retained. 

If  the  restrictions  arc  intended  to  benefit  the  surrounding 
property,  any  of  the  owners  of  that  property  may  enforce 
them.  They  remain  restrictions  on  the  land  even  when  it  is 
transferred  to  another  owner.  An  owner  who  violates  the 
restrictions  cannot  plead  that  they  arc  not  mentioned  in  the 

I  Vol.  II.  Reeves  on  Real  Property,  page   i486. 


TRANSFER  OF   REAL  PROPERTY 


459 


deed.  If  the  character  of  the  neighborhood  materially  changes 
so  that  the  restrictions  become  unreasonable,  the  courts  will 
as  a  rule  permit  the  violation  to  be  settled  by  the  payment  of 
damages,  even  though  the  original  deed  provided  that  the 
property  was  to  revert  to  the  grantor  or  his  heirs  if  any  of 
the  imposed  restrictions  were  violated  by  the  grantee. 

§  420.     Searching  Title 

A  purchaser  of  property  should  always  insist  on  a  warranty 
deed  for  his  own  protection,  unless  the  circumstances  are  such 
that  he  is  willing  to  take  the  property  even  at  the  risk  of 
further  expense  to  protect  his  tide.  Any  restrictions  in  earlier 
deeds  continue  to  affect  the  land,  even  in  the  hands  of  a  later 
owner.  The  possibility  of  defects  in  the  tide  of,  or  existing 
claims  against,  any  property  is  also  always  present.  Therefore, 
the  purchaser  of  real  estate  should  always  have  the  title  ex- 
amined to  make  sure  that  his  right  is  incontestable  and  that 
he  is  likely  to  remain  in  undisturbed  possession. 

An  abstract  of  title  is  a  carefully  written  report  showing 
all  matters  which  affect  the  tide.  These  items  are  of  record 
concerning  a  particular  piece  of  land. 

To  make  a  thorough  search  is  no  simple  matter.  It  is 
necessary  carefully  to  examine  the  various  records  for  the 
following  encumbrances : 

1.  Mortgages  and  equitable  mortgages.     A  vendor's 

lien  duly  reserved  is  held  to  be  an  equitable  mort- 
gage. 

2.  Judgments  or  lis  pendens,  i.e.,  notice  of  suits  that 

affect  the  title. 

3.  Taxes  and  assessments  unpaid,  for  state,  county, 

city,  or  for  transfer. 

4.  Mechanics'  liens. 

5.  Any  rights  of  dower  or  curtesy  that  have  not  been 

released. 


460 


REAL  AND  PERSONAL  PROPERTY 


TRANSFER  OF  REAL  PROPERTY 


461 


This  search  may  be  most  effectively  made  by  one  of  the 
numerous  companies  whose  business  it  is  to  examine  such  titles 
with  a  view  to  insuring  their  validity.  As  specialists  in  this 
complicated  legal  work  they  can  quickly  form  a  reliable  opinion 
as  to  the  validity  of  any  title  to  property  within  a  given 
locality.  In  many  cases  it  is  advisable  to  have  the  title  guaran- 
teed  by  some  one  of  the  title  guaranty  companies. 

A  method  of  guaranteeing  any  title,  called  the  Torrens 
System,  is  used  in  Australia.  This  system  has  been  adopted 
in  some  states  in  this  country.  Under  the  Torrens  System  in 
New  York,  any  person  having  an  interest  m  the  property  may 
bring  a  proceeding  to  register  the  title.  He  must  prove  to 
the  court  that  his  title  is  good.  Once  registered,  the  state 
guarantees  the  title  and  virtually  insures  the  owner  against 
adverse  claims ;  and  any  subsequent  changes  in  the  state  of  the 
ownership,  etc.,  will  be  recorded  on  the  registry,  saving  further 
searches. 

§431.    Mortgage  of  Real  Property 

A  mortgage  of  real  property  is  given  as  security  for  the 
due  payment  of  a  note  or,  more  generally,  a  bond.  A  bond 
is  a  formal  obligation,  under  seal,  to  pay  money  at  a  certain 
time  or  under  certain  conditions.  A  mortgage  is  in  form 
an  instrument  like  a  deed,  assigning  the  property  in  question 
to  the  man  who  has  loaned  the  money,  but  providing  that  if 
the  money  is  repaid  when  due,  the  assignment  shall  be  null 
and  void.  Sometimes  an  absolute  deed  of  land  is  given  to 
secure  the  payment  of  money;  in  such  case  the  deed  is  in 
reality  a  mortgage  and  may  be  so  proved.  It  is  classified  as 
an  equitable  mortgage. 

Formal  mortgages  and  deeds  of  trust  are  termed  "legal 

mortgages."  ,        ,.  ^    r  •      ^ 

When  property  is  sold,  the  usual  method  of  securing  de- 
ferred payments  is  for  the  purchaser  to  give  a  legal  mortgage 


for  the  amount  unpaid.  When  this  is  not  done,  the  seller  has 
what  is  called  a  "vendor's  lien"  on  the  land.  Sometimes  this 
is  expressed  in  the  deed.  Such  a  lien  is  classed  as  an  equitable 
mortgage. 

When  suit  is  brought  that  will  affect  the  title  to  property, 
notice  of  it,  called  a  "lis  pendens,'*  may  be  filed.  This  gives 
a  lien  on  the  land  and  is  considered  an  equitable  mort- 
gage. 

The  possession  of  the  property  remains  in  the  hands  of  the 
mortgagor  (the  person  who  executes  the  mortgage),  and  the 
mortgagee  (the  person  who  loans  the  money)  has  the  right 
to  foreclose  or  take  possession  of  the  property  if  the  mort- 
gagor does  not  live  up  to  his  agreement.  The  collection  of 
interest  on  a  mortgage  must  be  provided  for  in  the  written 
agreement. 

Form  of  Mortgage.  A  mortgage  is  in  form  a  deed  of  the 
property  from  the  mortgagor  to  the  mortgagee.  (See  §  416 
and  Form  74.)  If  the  conditions  that  are  named  in  the  deed 
are  fulfilled  it  will  become  of  no  effect;  if  the  conditions  are 
not  fulfilled,  the  mortgagee  will  have  a  right  to  foreclose.  The 
mortgage  should  be  under  seal  and  should  be  recorded  in  the 
office  for  the  registry  of  deeds  in  the  county  where  the  property 
is  located.  When  paid,  a  satisfaction  piece  stating  in  simple 
terms  that  the  mortgage  has  been  paid  and  referring  to  the 
page  of  the  record  where  it  is  recorded  should  be  filed  with  it. 
In  New  York,  the  original  mortgage  together  with  the  satis- 
faction piece  should  be  left  on  file  for  ten  years. 

Mortgageable  Property.  Any  property,  or  interest  in  prop- 
erty which  may  be  assigned,  may  be  mortgaged.  This  includes, 
of  course,  any  tangible  property.  It  also  includes  interests  in 
property  which  will  mature  only  in  the  future.  Even  if  they 
are  interests  which  may  never  take  effect,  such  as  contingent 
remainders  (see  §  406),  in  some  states  they  may  be  assigned 
and  mortgaged. 


REAL  AND  PERSONAL  PROPERTY 


§422.    Foreclosure 

The  term  "foreclosing  a  mortgage"  implies  that  legal  steps 
are  to  be  taken  to  sell  the  property  and  to  apply  the  price 
realized  to  the  payment  of  the  debt.  If  more  is  realized  by  the 
sale  than  is  necessary  to  pay  oflE  the  mortgage,  the  interest  due, 
and  the  expenses  of  the  enforced  proceedings,  any  surplus 
belongs  to  the  mortgagor.  If  there  is  a  deficit,  the  mortgagee 
may  sue  the  mortgagor  on  the  bond  and  collect  what  remains 
unpaid.    Usually  both  bond  and  mortgage  are  sued  on  together. 

Up  to  the  time  the  property  is  sold  the  mortgagor  has  the 
right  to  redeem  it  from  sale  by  paying  the  amount  of  the 
mortgage,  the  interest,  and  the  expenses  up  to  the  time  of 
the  foreclosure.  This  right  of  the  mortgagor  is  termed  his 
"equity  of  redemption." 

If  the  property  is  transferred  it  remains  subject  to  the 
mortgage,  but  the  new  owner  does  not  become  personally 
responsible  for  the  payment  of  any  part  of  the  debt.  The 
property  is  bound,  but  if  on  the  sale  it  does  not  bring  enough 
to  satisfy  the  mortgage,  the  new  owner  is  not  liable.  The 
original  mortgagor  still  remains  responsible.  He  may  give 
notice  to  the  mortgagee  to  foreclose  when  the  mortgage  falls 
due,  or  may  offer  to  pay  the  amount  due  and  to  take  an 
assignment  of  the  mortgage. 

Method  of  Procedure.  The  first  step  in  a  foreclosure  is 
to  file  notice  of  the  suit  (a  so-called  lis  pendens)  in  the  office 
where  the  mortgage  is  recorded.  This  warns  all  third  parties ; 
and  as  a  result  any  possible  rights  which  they  may  claim  in 
the  property  or  later  acquire  will  be  subject  to  the  prior  claim 
of  the  mortgagee  as  established  by  the  suit. 

When  bringing  a  foreclosure  suit,  all  persons  interested  in 
the  property  must  be  given  notice  to  defend  their  interests. 
This  is  done  in  order  to  give  them  opportunity  to  protect  their 
rights  in  the  property  or  in  the  surplus  proceeds  if  there  be 
any.     Persons  who  hold  liens  against  real  property  are  re- 


TRANSFER  OF  REAL  PROPERTY 


463 


quired  to  record  them  if  they  wish  to  protect  their  rights  as 
against  third  parties.  An  examination  of  the  books  in  the 
offices  of  record  in  the  county  where  the  mortgage  is  recorded 
will  reveal  the  names  of  any  such  persons. 

If  the  property  is  leased,  tenants  should  also  be  made 
parties  defendant  to  the  action,  since  possession  is  considered 
interest  in  the  property  and  possession  under  an  unrecorded 
deed  is  good  notice  of  a  possible  ownership. 

§423.    Kinds  of  Mortgages 

Deeds  of  Trust.  Mortgages  may  be  given  by  a  deed  in 
trust  to  a  third  party  as  trustee.  This  is  the  usual  rule  with 
corporate  mortgages.  These  are  called  "deeds  of  trust."  The 
trustee  has  the  right  to  foreclose.  If  he  fails  to  exercise  his 
right,  a  bondholder  may  bring  foreclosure  for  the  benefit  of 
other  bondholders  on  showing  the  court  that  the  foreclosure  is 
necessary  to  protect  their  interests  and  that  the  trustee  refuses 
to  take  action. 

Purchase  Money  Mortgages.  These  are  mortgages  given 
for  part  or  the  whole  of  the  purchase  price  of  land.  They  take 
precedence  of  every  other  claim  against  the  property.  It  is 
not  necessary  for  a  wife  to  join  in  a  purchase  money  mortgage 
in  order  to  cut  off  her  right  of  dower.  The  mortgage  is  at- 
tached to  the  property  before  it  becomes  the  property  of  her 
husband,  and  she  is  entitled  to  dower  only  in  what  may  remain 
to  her  husband  after  the  mortgage  on  tlie  property  is  paid  off, 
or  in  his  equity  of  redemption  which  will  be  his  share  of  the 
price  of  the  land  on  foreclosure  sale.  The  rriortgage  may  be 
given  either  to  the  person  from  whom  the  land  is  bought,  or 
to  a  third  person. 

Building  and  Loan  Mortgages.  Building  and  loan  mort- 
gages are  frequently  given  to  secure  funds  for  erecting  a  build- 
ing. The  money  is  paid  over  in  instalments  as  the  building 
reaches  certain  stages.    Interest  may  be  charged  on  each  instal- 


464 


EEAL  AND  PERSONAL  PROPERTY 


TRANSFER  OF  REAL  PROPERTY 


465 


III 


I 


ment  only  from  the  time  it  is  paid  over;  but  the  mortgagee 
may  deliver  the  whole  amount  to  a  trust  company  to  be  held 
and  paid  over  as  the  instalments  fall  due.  FuU  interest  may 
then  be  charged,  deducting  the  amount  which  the  trust  com- 
pany allows  on  the  deposit. 

Sundry  Mortgages.  Corporate  mortgages  can  be  given 
only  with  the  consent  of  two-tiiirds  of  the  stockholders. 
Guardians  and  trustees  may  give  mortgages  only  with  the 
court's  permission ;  they,  as  weU  as  such  institutions  as  savings 
banks,  are  also  restricted  in  the  kinds  of  mortgages  which  they 
may  accept.  In  New  York,  savings  banks  may  hold  mortgages 
on  improved  real  property  to  an  amount  not  exceedmg  60 
per  cent  of  its  value.  Trustees  and  guardians  are  limited 
to  the  same  kinds  of  investments  as  savings  banks. 

If  an  executor  or  an  administrator  gives  a  mortgage,  the 
agreement  binds  only  himself  personally  and  not  the  property 
of  the  estate,  unless  the  executor  is  given  power  to  mortgage 

in  the  will. 

Contract  to  Mortgage.  This  must  be  in  writing  and  signed 
as  is  a  contract  for  a  deed  (see  §  416.)  The  mortgagee  can 
compel  the  mortgagor  to  carry  out  his  contract  and  to  give 
him  a  mortgage  on  the  property,  because  his  agreement  con- 
cerns real  property ;  the  mortgagor,  on  the  other  hand,  has  a 
right  to  damages  only  in  case  the  mortgagee  fails  to  carry  out 
his  agreement.  If  mortgaged  property  is  sold  and  the  mort- 
gagee at  the  request  of  the  new  owner  extends  the  time  for 
payment,  he  relieves  the  original  mortgagor  and  can  only 
recover  from  foreclosure  and  the  new  owner. 

Notes: 

I.  Everything  necessary  to  keep  the  property  in  good 
shape,  such  as  payment  of  taxes,  repairs,  etc., 
should  be  provided  for  in  the  mortgage,  with  a 
proviso  allowing  the  mortgagee  to  foreclose  if  the 


2. 


payments  are  not  kept  up ;  and  it  should  be  pro- 
vided that  in  case  any  suit  is  brought  against  the 
mortgagor  concerning  the  property,  he  will  have 
the  mortgagee  brought  into  court  to  protect  the 
latter*s  rights. 
A  mortgage  should  always  state  what  other  claims 
there  may  be  against  the  property  at  the  time  the 
agreement  is  made.  If  the  property  is  sold  on 
foreclosure  and  the  purchaser  is  not  informed  in 
regard  to  these  claims,  if  any,  he  may  refuse  to 
take  the  property.  If  they  are  indicated  in  the 
mortgage  they  cannot  be  overlooked  when  the  sale 
is  made. 


Review  Questions 

1.  What  is  a  deed? 

2.  What  is  a  quitclaim  deed  ?    What  is  a  warranty  deed  ? 

3.  What  are  the  essential  features  of  a  warranty  deed?    What  arc 

the  requisites  of  a  deed  in  your  state? 

4.  What  is  meant  by  the  execution  of  a  deed? 

5.  What  is  essential  to  the  proper  execution  of  a  deed  conveying 

land?    Is  attestation  required  in  your  state? 

6.  Define  acknowledgment  of  a  deed.    What  is  its  object?    Why? 

Is  it  essential? 

7.  When  does  the  record  of  a  deed  take  effect?    How  must  a  deed 

be  recorded? 

8.  Is  recording  of  a  deed  not  properly  acknowledged  good  against 

creditors  and  subsequent  purchasers  without  notice? 

9.  When  does  a  deed  conveying  realty  take  effect?     What  is  the 

legal  presumption? 
10.    What  is  meant  by  placing  a  deed  in  escrow? 
n.    By  the  law  of  what  place  is  a  contract  for  the  transfer  of  real 

property  governed? 
12.    If  restrictions  on  the  use  of  real  property  become  unreasonable, 

what  relief  will  the  courts  give? 


466 


REAL  AND  PERSONAL  PROPERTY 


13.  What  is  the  object  of  searching  title?    What  is  an  abstract  of 

title?     What  is  the  Torrens  System  and  what  are  its  ad- 
vantages? 

14.  What  is  a  mortgage?    A  bond?    A  deed  of  trust? 

15.  May  a  conveyance  of  property,  absolute  on  its  face  and  under 

seal,  be  shown  by  outside  evidence  to  be  only  a  mortgage? 

16.  Define  equitable  mortgage.    What  kinds  of  foreclosure  are  there? 

17.  Define  mortgagor's  equity  in  real  estate. 

18.  Before  completion  of  an   action  to   foreclose,  the  mortgagor 

goes  into  bankruptcy.    Can  the  mortgagee  foreclose?    Can  he 
enforce  the  bond? 

What  is  the  method  of  foreclosing  a  mortgage? 

A  mortgage  is  not  paid  off  by  foreclosing.  What  rank  has  the 
claim  of  the  mortgagee  for  the  remainder  among  claims  of 
other  creditors  on  other  property  of  the  debtor  ? 

Who  may  redeem  real  property  from  a  forced  sale  and  within 
what  period  of  time? 

Has  a  judgment  when  docketed  preference  over  an  existing  un- 
recorded mortgage? 

A  makes  a  bond  and  mortgage,  and  later  transfers  the  property 
to  B.  B,  when  the  mortgage  falls  due,  gets  an  extension.  Does 
this  affect  A's  liability  on  his  bond  ? 

A  borrows  money  from  B  and  mortgages  his  house  as  security. 
A  then  sells  the  house  to  C,  who  pays  to  A  the  difference 
between  the  value  of  the  property  and  the  amount  of  the 
mortgage.  The  mortgage  is  unpaid  at  maturity,  B  forecloses 
it,  and  the  property  is  sold  for  less  than  the  amount  of  the 
mortgage.  Can  B  collect  the  difference  from  either  A  or  C? 
Explain  fully. 
25.  A  held  a  bond  and  mortgage  executed  by  B  for  the  sum  of 
$5,000.  B  paid  A  in  instalments  from  time  to  time  until  he 
had  paid  $4,000.  A  assigned  the  bond  and  mortgage  to  C, 
receiving  from  him  $5,000.  Afterwards,  B  tendered  C  the 
$1,000  still  due  and  demanded  satisfaction  of  the  mortgage, 
which  C  refused  and  brought  suit  to  foreclose.  Is  C  entitled 
to  recover  the  full  amount?    Give  the  reasons  for  your  answer. 


19 
20 


21. 


22. 


23. 


24, 


CHAPTER  LXII 

LANDLORD  AND  TENANT 

§  424.    Lease  of  Real  Property 

A  lease  of  real  property  gives  the  right  to  its  use  for  a  cer- 
tain length  of  time  in  return  for  rent.  A  lease  may  be  at  will; 
that  is,  no  definite  time  may  be  fixed  for  its  termination,  but 
in  that  case  the  landlord  may  bring  it  to  an  end  when  he 
wishes ;  or  it  may  be  for  a  fixed  period,  such  as  a  year,  or  a 
month.  At  the  end  of  the  period  the  lease  ends.  If  the  tenant 
remains  in  possession  of  the  property,  the  landlord  may  regard 
him  as  a  trespasser  and  request  him  to  leave,  or  he  may  permit 
him  to  remain  and  may  accept  rent,  in  which  case  a  new  lease 
is  implied  for  the  same  period  as  the  old  one. 

If  the  tenancy  was  from  year  to  .year,  the  new  lease  will  be 
for  a  similar  period.  In  case  of  such  a  lease,  either  party  must 
give  the  other  six  months'  notice  in  order  to  terminate  the 
lease.  This  was  the  common  law  rule.  In  many  states  this 
has  been  changed  by  statute  and  only  three  months'  or  sixty 
days'  notice  is  required.  If  the  lease  ran  from  month  to 
month,  then  twenty  days'  notice  is  sufficient.  The  notice  must 
be  given  the  required  period  before  the  end  of  the  year,  or 
twenty  days  before  the  end  of  the  month — otherwise  the  lease 
will  run  over  for  another  year  or  another  month.  A  lease 
can  be  ended  only  at  the  close  of  the  year  or  the  month.  An 
agreement  for  a  definite  term,  as  for  a  month  or  a  year, 
requires  no  notice.  It  simply  terminates  at  the  specified  time, 
and  the  tenant  may  leave  or  the  landlord  take  possession  with- 
out recourse  to  the  other  party. 

In  New  York  a  lease  for  more  than  one  year  is  void  unless 

467 


I 


468 


REAL  AND  PERSONAL  PROPERTY 


LANDLORD  AND  TENANT 


469 


III 


m\ 


in  writing,  signed  by  the  party  or  his  agent,  who  is  required 
to  have  written  authority  to  execute  a  lease  of  this  kind.  That 
is  to  say,  the  contract  as  between  landlord  and  tenant  is  not 
illegal  or  void  if  carried  out  by  them ;  but  should  a  suit  arise, 
unless  a  memorandum  or  some  writing  signed  by  the  person 
to  be  charged  can  be  shown  by  the  plaintiff,  the  contract  is 
void  and  no  action  will  lie. 

The  bankruptcy  of  a  tenant  will  not  affect  the  lease. 

A  tenant  when  quitting  the  premises  must  take  all  his 
possessions  with  him,  as  any  property  remaining  on  the 
premises  after  the  expiration  of  the  term  will  constitute  a 
holding  over.  Where,  however,  the  landlord  or  the  janitor 
allows  property  to  remain  on  the  premises  for  a  time,  to  con- 
venience the  tenant,  this  will  not  constitute  a  holdover. 

An  estate  at  will  may  be  terminated  at  any  time  by  the 
mutual  consent  of  the  parties.  If  an  owner  transfers  property 
to  a  third  party,  a  tenancy  at  will  is  terminated.  Tenants  at 
will  may  not  sublet 

§425.    Parties  to  a  Lease 

The  parties  to  a  lease  are  the  landlord— the  owner  who 
lets  the  property — and  the  tenant  who  rents.  The  tenant  is 
obliged  to  pay  rent  and  to  keep  the  property  in  as  good  condi- 
tion as  received,  reasonable  wear  and  tear  excepted.  Where 
the  landlord  is  responsible  for  the  maintenance  of  hallways, 
basements,  etc.,  as  in  an  apartment  house  or  an  office  building, 
he  must  keep  them  in  usable  and  safe  condition.  Otherwise, 
he  is  not  bound  to  make  repairs  unless  it  is  provided  that 
he  shall  do  so  in  the  lease.  But  if  there  is  any  defect  in  the 
property  which  could  not  be  discovered  on  examination  at 
the  time  when  the  lease  was  signed  and  of  which  the  landlord 
knew,  such,  for  instance,  as  impure  drinking  water,  which  only 
experts  could  detect,  the  landlord  is  liable  in  damages  and  the 
lease  may  be  treated  as  broken. 


§426.    Rights  and  Duties  of  Landlord 

If  the  tenant  fails  to  pay  rent  or  breaks  any  other  agree- 
ment in  the  lease,  the  landlord  may  evict  him.  If  the  landlord 
accepts  any  of  the  rent  due  after  the  tenant  has  broken  the 
lease  in  this  manner,  he  cannot  put  him  off  the  premises,  but 
may  bring  suit  to  collect  the  remainder  of  rent  or  for  damages. 
In  case  of  eviction  the  tenant  must  be  given  due  notice,  the 
length  of  time  depending  upon  statutory  requirements. 

At  common  law,  if  leased  buildings  were  destroyed,  the 
tenant  had  to  continue  to  pay  rent  and  might  be  compelled  to 
rebuild.  Some  of  the  states  have  changed  this  Ijy  legislation, 
so  that  tenants  who  are  not  at  fault  may  in  such  cases  terminate 
their  leases  by  vacating  the  premises  promptly  if  the  buildings 
are  rendered  untenantable  by  reason  of  fire,  dampness,  offen- 
sive odors,  defective  plumbing,  and  the  like.  Except  by  ex- 
press stipulation,  the  owner  pays  all  taxes  and  assessments. 

It  is  the  duty  of  the  owner  to  provide  suitable  guards  at 
elevator  shafts,  and  the  tenant  as  well  as  any  third  person  may 
recover  from  him  for  injury  due  to  his  failure  to  do  so. 

The  lessee  need  not  permit  anyone  to  enter  upon  the 
premises  he  has  leased,  unless,  as  is  usual,  it  is  stipulated  that 
for  a  certain  time  before  the  expiration  of  the  lease,  pro- 
spective tenants  shall  be  admitted.  If,  however,  the  landlord 
is  compelled  by  law  or  city  ordinance  to  make  alterations,  he 
may  of  course  enter  upon  the  premises  and  make  the  required 
changes.  A  building  which  has  been  erected  by  a  tenant  on 
the  land  leased  by  him,  becomes  a  part  of  the  realty  and 
belongs  to  the  landlord. 

§  427-    Rights  and  Duties  of  a  Tenant 

If  the  landlord  takes  possession  of  a  whole  or  part  of  the 
premises  during  the  term  of  the  lease,  this  is  equal  to  eviction 


m 


470 


REAL  AND  PERSONAL  PROPERTY 


LANDLORD  AND  TENANT 


471 


It 


fli 


i! 


and  is  so  called.  Such  procedure  constitutes  a  breach  of  the 
lease  on  the  landlord's  part  and  the  tenant  need  not  thereafter 
pay  rent.  If  the  tenant  is  evicted  from  only  part  of  the 
leased  property,  he  may  remain  on  the  rest  of  it  and  refuse 
to  pay  rent. 

If  the  landlord  permits  anything  which  renders  the  prop- 
erty uninhabitable,  such  as  insufficient  heat  in  an  apartment 
house,  this  is  termed  a  constructive  eviction.  The  tenant  has 
then  the  right  to  move  out  and  refuse  to  pay  any  more  rent; 
but  if  he  remains  he  must  pay.  If  the  tenant  supplies  the  heat 
himself  or  makes  repairs  which  the  landlord  should  have  made 
under  the  Icrase,  he  may  collect  the  money  he  has  spent  from 
the  landlord ;  but  if  such  expenditures  are  deducted  from  the 
rent  this  procedure  gives  the  landlord  the  right  to  terminate 
the  lease. 

The  tenant  has  no  right  to  utilize  the  resources  of  the 
property,  except  wood  used  to  make  necessary  repairs.  If 
there  are  developed  mines  on  the  land  he  may  work  them 
unless  forbidden  by  the  lease,  but  he  has  no  right  to  open 
mines.  He  has  a  right  to  fruit,  grass,  etc.,  which  ripens  or 
is  cut  or  picked  before  the  lease  runs  out,  and  a  right  to  any 
crops  which  he  has  planted  himself  if  he  has  reason  to  expect 
that  they  will  be  ready  to  be  gathered  before  the  lease 

expires. 

The  tenant  may  not  make  alterations  except  with  the  land- 
lord's consent.  If  the  landlord  has  not  consented,  the  car- 
penters and  builders  will  not  have  a  mechanics'  lien  against 
the  building. 

If  the  action  of  the  elements  renders  part  of  the  leased 
premises  untenantable,  even  though  the  landlord  immediately 
sets  about  repairs,  the  lessee  may  consider  the  lease  broken, 
pay  rent  up  to  that  date,  and  leave.  But  the  lessee  may  not 
claim  any  damages  for  loss  incurred,  whether  or  not  he 
remains. 


§  428.    Expediency  of  a  Written  Agreement 

A  lease  must  be  in  writing  if  for  a  longer  term  than  a 
year.  In  some  states  it  need  not  be  in  writing  unless  it  is 
to  run  for  three  years  or  more  and  need  not  be  under  seal. 
A  written  agreement,  however,  should  be  made  whether  the 
statute  requires  it  or  not,  and  should  state  whose  duty  it  is 
to  make  repairs,  and  what  notice  shall  be  necessary  to  terminate 
the  lease.  If  the  landlord  does  not  want  the  premises  sublet, 
he  must  see  that  a  provision  against  subletting  is  included. 

Unless  forbidden  in  the  lease,  the  tenant  may  sublet  either 
the  whole  or  a  part  of  the  premises.  He  remains  responsible 
to  the  landlord  for  the  payment  of  rent  and  for  the  relinquish- 
ing of  the  property  in  as  reasonably  good  condition  as  received. 

In  every  locality  landlords  have  printed  forms  of  lease  and 
tenants  are  rarely  in  a  position  to  insist  on  any  variation  of 
terms. 

It  is  not  necessary  to  record  any  lease,  but  it  is  wise  to 
do  so  if  the  tenant  does  not  intend  to  occupy  the  premises 
he  has  leased.  If  this  is  not  done  and  the  landlord  leases  the 
same  property  to  an  innocent  third  party,  the  third  party  will 
not  be  obliged  to  give  up  possession  to  the  first  lessee. 

Note: 

I.  The  tenant  is  at  a  disadvantage  and  must  depend 
largely  on  the  landlord's  character  for  fair  deal- 
ing. 


Review  Questions 

I.  What  is  a  tenancy  at  will?  What  notice  would  be  required  to 
terminate  a  tenancy  at  will  ?  What  notice  for  a  tenancy  from 
month  to  month  ?    What  notice  of  lease  is  for  a  definite  term  ? 

What  leases  are  required  to  be  in  writing?  What  leases  should 
be  recorded? 

On  an  oral  ten-year  lease,  B  enters  and  pay  two  years'  rent. 
Can  A  eject  B  without  notice? 


2. 


iHi 


472 


REAL  AND  PERSONAL  PROPERTY 


4.  Is  a  landlord  obliged  to  make  repairs? 

5.  If  a  landlord  permits  unsanitary  conditions,  what  is  the  effect? 

What  is  the  usual  result  of  disputes  between  landlord  and 
tenant?    What  is  a  constructive  eviction? 

6.  If  a  house  were  struck  by  lightning  and  part  of  the  roof  de- 

stroyed, what  would  the  rights  of  the  parties  be? 

7.  What  are  the  advantages  of  a  written  lease? 

a    Does  a  tenant  have  the  right  to  sublet  the  premises? 


PART  XI 
WILLS  AND  INHERITANCE 


I  II 


: 


CHAPTER  LXIII 

DISTRIBUTION  OF  PROPERTY  OF  AN  INTESTATE 

§  429.    Definitions 

If  a  man  dies  without  making  a  will,  he  is  said  "to  die 
intestate,"  and  the  law  will  distribute  the  property  he  has  left 
after  his  death  to  those  people  whom  it  considers  entitled  to  it. 
These  are  his  closest  relatives.  The  law  differs  with  re- 
gard to  the  distribution  of  real  property  and  personal  property. 

A  will  is  a  formal  written  disposition  of  his  property  to 
take  effect  after  his  death,  made  by  a  person  of  sound  and 
disposing  mind. 

Personal  property  left  by  a  will  is  called  a  "legacy,"  and 
the  person  to  whom  it  is  left  is  called  a  "legatee." 

Real  property  left  by  will  is  called  a  "devise"  and  the 
person  to  whom  it  is  left  is  called  a  "devisee." 

An  heir,  in  the  strictly  legal  sense,  is  one  who  inherits  real 
estate. 

A  testator  is  one  who  makes  a  will. 

Next  of  kin  are  those  most  closely  related. 

Distribution  is  the  legal  term  for  the  disposition  made  by 
law  of  the  personal  property  of  a  person  dying  intestate. 

An  administrator  is  a  person  or  a  trust  company  appointed 
by  a  probate  court  to  dispose  of  the  effects  of  the  intestate. 

The  probate  court  or  an  orphan's  court  or  a  surrogate's 
court  is  a  special  court  having  charge  of  all  matters  relating 
to  the  proof  of  wills  and  settling  of  estates. 

§  430.    Rules  of  the  Common  Law 

By  the  rules  of  the  common  law  all  realty  goes  to  the 
eldest  son;  this  is  called  the  "law  of  primogeniture";  if  there 

475 


47<i 


WILLS  AND  INHERITANCE 


DISTRIBUTION  OF  PROPERTY 


477 


if 


be  no  son,  then  it  goes  to  daughters  as  tenants  in  common. 
The  inheritance  can  never  ascend;  it  must  always  descend. 
Husband  and  wife  have  curtesy  and  dower  only ;  they  do  not 
inherit  from  one  another.  The  descent  is  always  traced  from 
the  common  ancestor,  and  the  degree  of  consanguinity  is 
measured  by  the  distance  from  the  common  ancestor  on  the 
part  of  the  descendant.  Personal  property  passes  to  the  next 
of  kin. 

These  rules  have  not  been  followed  in  this  country,  but 
in  each  state  it  is  provided  by  statute  how  real  and  personal 
property  shall  be  distributed  after  the  death  of  the  owner. 

§  431.    What  Will  Become  of  Real  Property 

In  the  state  of  New  York,  if  a  person  dies  intestate  leav- 
ing real  property,  the  law  will  dispose  of  it  in  the  following 
manner: 

I.     Lean/ing  children  but  no  husband  or  wife: 

(a)  If  all  are  living,  each  one  gets  an  equal  share. 

(b)  If  some  are  living,  and  some  are  dead,  the  property 

will  be  divided  into  as  many  equal  parts  as 
there  are  children  living,  and  children  who  have 
died  but  left  children,  and 
(i)    Each  living  child  gets  one  of  the  equal 
parts. 

(2)  The  share  of  each  dead  child  is  divided 

equally  among  his  or  her  children. 

(3)  If  any  children  have  died  leaving  no 

children,  the  property  is  divided  as 
though  they  had  never  existed. 

(4)  To  illustrate,  if  the  deceased  had  four 

children,  the  first  of  whom  had  died 
childless,  the  second  of  whom  had  died 
leaving  one  child,  the  third  of  whom 


had  died  leaving  two  children,  and  the 
fourth  of  whom  was  living,  his  prop- 
erty would  be  divided  into  three  equal 
parts,  completely  disregarding  the  first 
who  had  died  childless.  The  child  of 
the  second  would  receive  one  share, 
the  two  children  of  the  third  would 
each  receive  half  a  share,  and  the 
fourth,  the  surviving  child  of  the  de- 
ceased, would  receive  one  share. 
Legally  adopted  children  usually  have 
the  same  rights  as  one's  own  children. 

2.  Leaving  grandchildren,  but  no  children: 

(a)  If  all  are  living,  each  one  gets  an  equal  share,  that 

is,  they  share  per  capita. 

(b)  If  some  are  living  and  some  are  dead,  the  property 

is  divided  in  the  same  way  as  in  the  paragraph 
above,  and 

(i)     Each  living  grandchild  gets  one  of  the 
equal  parts. 

(2)  The  share  of  each  grandchild  who  died 

leaving  children  is  divided  equally 
among  his  children,  that  is,  they  share 
per  stirpes. 

(3)  What  applies  to  children  applies  also  to 

grandchildren  who  have  died  leaving 
no  children. 

3.  Leaving  great-grandchildren,   but  neither  children   nor 

grandchildren: 

The  same  thing  follows  as  in  the  case  of  children  and 
grandchildren,  as  given  above. 

4.  Leaving  no  children,  grandchildren,  or  other  descendants: 

(a)     If  the  deceased's  father  and  mother  are  both  liv- 


1 1 


478  WILLS  AND  INHERITANCE 

ing,  generally  speaking  all  the  property  goes  to 
deceased's  father  unless  it  came  to  him  or  her 
from  the  mother's  side. 

(b)  If  the  deceased's  father  is  dead  and  mother  living, 

she  usually  gets  the  use  of  the  property  for  life, 
and  after  her  death  it  is  divided  among  de- 
ceased's brothers  and  sisters. 

(c)  If  the  deceased's  father  and  mother  are  both  dead : 

(1)  The  property  is  divided  equally  among 

deceased's  brothers  and  sisters;  the 
share  of  any  brother  or  sister  who  is 
dead  leaving  children  being  divided 
equally  among  his  or  her  children  in 
the  same  manner  as  explained  in 
paragraph  l-b. 

(2)  If  there  are  no  brothers  or  sisters,  the 

property  is  divided  among  nieces  and 
nephews  and  their  children  in  the  same 
way,  and  so  on  down  through  grand- 
nieces  and  grandnephews,  great  grand- 
nieces  and  great-grandnephews,  etc.; 
except  that  property  which  came  to  the 
deceased  from  the  mother's  side  will 
be  divided  among  uncles,  aunts,  and 
cousins  on  the  mother's  side,  if  there 
are  any;  property  which  came  to  the 
deceased  from  the  father's  side  will 
be  divided  among  uncles,  aunts,  and 
cousins  on  the  father's  side,  if  there 
are  any,  in  the  same  way. 

(3)  Where   there  are  no  uncles,   aunts,   or 

cousins  of  any  degree,  the  grand- 
parents take  it.  If  the  property  came 
from  the  mother's  side,   the  grand- 


DISTRIBUTION  OF  PROPERTY 


479 


parents  on  that  side  take  it,  if  they  are 
living;  if  from  the  father's  side,  the 
grandparents  on  that  side  in  the  same 
way;  if  from  neither,  it  is  equally 
divided  among  all  surviving  grand- 
parents. 

Children  of  the  half-blood  inherit  only  from  their  own 
parents. 

Half  brothers  and  sisters,  and  uncles  and  aunts  who  were 
half  brothers  or  sisters  of  the  parents  of  the  deceased  will  take 
the  same  shares  as  whole  brothers  and  sisters,  uncles  and 
aunts. 

If  a  man  dies  intestate,  leaving  a  wife,  she  will  be  entitled 
to  the  use  of  one-third  of  his  real  property  during  her  life. 
This  is  known  as  the  right  of  dower.  Other  persons  who  in- 
herit must  allow  her  this  right,  or  pay  her  an  equivalent  in 
money.     (See  §  409.) 

If  a  woman  dies  without  leaving  a  will,  and  she  has  had 
children,  her  husband  will  be  entitled  to  the  use  of  all  of  her 
real  property  during  his  life.  This  is  known  as  the  right  of 
curtesy.  The  children  can  take  the  property  only  after  he  is 
dead.  If  there  have  been  no  children,  the  property  goes  to  the 
relatives  first  named.    (  See  paragraph  4  above. ) 

If  a  person  dies  intestate  without  leaving  any  relatives  his 
or  her  property  goes  to  the  state. 

When,  during  his  lifetime,  a  person  has  transferred  real  or 
personal  property  to  any  children,  the  amount  of  the  advance- 
ment will  be  subtracted  from  the  share  which  is  given  the 
child  at  his  death  so  that  all  the  children  in  the  end  may  share 
alike  in  the  property.  The  law  regards  the  person  who  is  dead 
as  having  made  the  transfer  as  an  advancement  of  the  share 
which  the  child  would  have  received  at  his  death.  Not  all 
gifts  or  sums  of  money,  however,  which  are  given  to  a  child 


I.f 


4B0 


WILLS  AND  INHERITANCE 


DISTRIBUTION  OF   PROPERTY 


arc  accounted  as  advancements.    On  this  account  advance- 
ments are  sometimes  a  cause  of  contention  and  ill-feeling. 

The  statements  above  are  based  on  the  inheritance  law  of 
New  York.  Other  states  follow  the  same  general  lines,  but 
may  differ  in  some  particulars,  and  the  statutes  of  the  state 
in  which  the  property  is  situated  should  be  consulted.  The 
law  of  the  state  where  real  property  is  located  always  governs 
the  disposition  of  the  property. 

§432.    What  Wm  Become  of  Personal  Property 

If  a  resident  of  New  York  dies  without  making  a  will,  his 
personal  property  will  be  distributed  in  the  following  manner, 
depending  on  which  of  the  relatives  mentioned  is  left: 

1.  Leaving  a  husband  or  wife  and  children: 

One-third  goes  to  the  husband  or  wife,  and  the  other 
two-thirds  are  divided  equally  among  the  children. 
The  shares  of  any  children  who  are  dead  are  equally 
divided  among  their  children  in  the  same  way  as  in 
the  case  of  real  estate.    (See  paragraph  i-b  in  §  431.) 

2.  Leaving  children  hut  no  husband  or  wife: 

The  property  is  divided  among  the  children  equally,  the 
children  of  any  who  are  dead  receiving  their  parent's 
share  which  is  equally  divided  among  them. 

3.  Leaving  a  wife  but  no  children: 

(a)     If  the  deceased's  father  is  living,  the  wife  gets 
one-half  the  property;  the   father,   the  other 
half. 
*  (b)     If  the  deceased's  father  is  dead: 

( I )  The  wife  gets  one-half  and  the  other  half 
is  divided  equally  between  the  de- 
ceased's mother  and  brothers  and 
sisters.    If  any  of  these  is  dead,  his  or 


481 


her  share  goes  to  his  or  her  children 
in  equal  parts.     (See  paragraph  i-b  in 

§  431.) 

(2)  If  deceased  has  no  brothers  and  sisters. 

but  has  nephews  and  nieces  of  any  de- 
gree, the  other  half  is  divided  equally 
between  the  deceased's  mother  and 
such  nephews  and  nieces.  The  share 
of  a  nephew  or  niece  who  has  died  is 
divided  equally  among  his  or  her 
children  (see  paragraph  i-bof  §  431.) 

(3)  If  deceased  leaves  neither  brothers  nor 

sisters,  nephews  nor  nieces  of  any  de- 
gree, the  wife  takes  one-half  and  the 
mother  the  other. 

(4)  If   deceased   leaves   neither    father   nor 

mother,  brothers  nor  sisters,  nephews 
nor  nieces,  the  wife  gets  the  entire 
property. 

4.  Leaving  a  husband  but  no  children: 

The  husband  takes  all  the  estate.  This  is  the  old  com- 
mon law  rule,  and  applies  because  no  state  legislature 
has  changed  it. 

5.  Leaving  no  husband,  zvife,  or  children: 

(a)  If  deceased's  father  is  living,  he  gets  the  whole 

property. 

(b)  If  deceased's  father  is  dead: 

(l)  The  property  is  equally  divided  among 
deceased's  mother,  brothers,  and  sis- 
ters, and  the  children  of  such  as  are 
dead ;  or,  if  there  are  no  brothers  and 
sisters,  between  deceased's  mother  and 
nephews  and  nieces  of  any  degree  and 


I 


482  WILLS  AND  INHERITANCE 

the  children  of  such  as  are  dead,  in 
the  same  way  as  explained  in  i-b  of 

§  431. 

(2)  If    there   are    no    brothers    or    sisters, 

nephews  or  nieces  of  any  degree,  then 
deceased's  mother  receives  the  whole. 

(3)  If  deceased's  mother  is  dead  too,  the  prop- 

erty will  go  to  uncles  and  aunts,  or,  if 
none  be  living,  to  cousins  of  any  de- 
gree or  to  grandparents.  In  the  case 
of  any  of  these  relatives^  if  any  have 
died  leaving  children,  the  children  do 
not  receive  a  share.  The  property  is 
divided  among  those  who  are  living. 

Where  a  person  dies  intestate  leaving  no  relatives  at  all 
any  personal  property  which  came  to  the  deceased  from  a  de- 
ceased husband  or  wife  will  be  distributed  among  the  deceased 
husband's  or  wife's  surviving  relatives  in  the  manner  illus- 
trated above.    Any  which  did  not  so  come  will  go  to  the  state. 

Half  brothers  and  sisters  are  counted  as  own  brothers  and 
sisters,  and  uncles  and  aunts  who  were  half  brothers  and 
sisters  of  the  parents  of  the  deceased  as  fully  related. 

This  distribution  of  personal  property  is  in  accordance 
with  the  law  of  New  York.  In  other  states  it  is  important  to 
consult  the  local  laws  as  to  the  distribution  of  personal  prop- 
erty as  they  differ  greatly.  Personal  property  is  always  dis- 
tributed according  to  the  law  of  the  state  of  which  the  deceased 
was  a  resident.  A  wife's  residence  is  where  her  husband  lives 
even  if  she  is  actually  living  apart  from  him,  unless  she  has 
had  a  legal  separation,  a  divorce,  or  good  grounds  for  either. 
(See  §  476.)  The  residence  of  a  person  under  twenty-one 
is  his  father's  residence;  or  his  mother's,  if  his  father  is  not 
living.    If  his  mother  has  remarried,  the  child's  residence  does 


DISTRIBUTION  OF  PROPERTY 


483 


not  change  but  remains  in  the  state  in  which  his  mother  was 
living  before  she  remarried. 

§433-    l8  it  Wise  to  Make  a  WiU? 

As  a  general  rule  a  will  is  better.  Usually  a  person  can 
distribute  property  more  justly  and  provide  more  generously 
for  those  who  need  his  help  than  can  be  done  by  the  general 
rules  of  the  law.  Even  if  a  person  is  satisfied  with  the  dis- 
position  which  the  law  makes  of  his  property,  he  can,  by 
making  a  will,  save  his  surviving  relatives  trouble  and  expense. 
If  there  is  any  personal  property  to  be  distributed  or  any  debts 
are  to  be  paid,  it  will  be  necessary  for  someone  to  take  out 
letters  of  administration  and  the  person  taking  them  out  will 
be  obliged  to  give  a  bond  in  double  the  amount  of  the  prop- 
erty, which  means  expense  and  trouble.  A  person  may  pro- 
vide in  his  will  that  his  executor  may  serve  without  giving  a 
bond. 

Whenever  there  is  no  will  the  law  gives  the  administration 
of  the  estate  to  the  nearest  relative  who  is  willing  to  take  it, 
a  surviving  husband  or  wife  coming  first  in  order.  To  avoid 
this,  it  may  be  preferable  to  select  some  other  person  of 
superior  business  ability  to  take  charge  of  the  estate.  If  this 
IS  done  the  consent  of  the  party  to  serve  should  be  first  pro- 
cured, as  he  may  refuse  and  the  administration  of  the  estate 
will  then  come  back  to  the  person  whom  the  law  selects,  even 
though  there  is  a  will. 

A  trust  company  may  act  as  executor  and  in  most  cases  this 
will  be  more  satisfactory  than  the  designation  of  an  individual. 
Note: 

I.  If  the  person  to  whom  you  are  going  to  leave  the 
bulk  of  your  property  is  a  person  of  integrity  and 
fair  business  ability,  it  is  advisable  to  name  him  as 
executor.   Persons  not  interested  in  the  estate  are 


484 


WILLS  AND  INHERITANCE 


apt  to  shirk  the  responsibility,  especially  if  they 
are  required  to  go  to  the  expense  and  trouble  of 
procuring  bonds. 


Review  Questions 


I 

2. 


Define  a  will,  heir,  devisee,  legatee,  testator,  intestate,  next  of  kin. 

Give  the  common  law  rules  as  to  the  distribution  of  property  of 
an  intestate.  The  common  law  rules  are  simple.  What  criti- 
cism would  you  make? 

3.  Give  abstract  of  the  disposition  of  an  intestate's  real  estate  in 

your  state:  (a)  where  there  are  children;  (b)  where  there 
are  no  children,  but  both  parents  live;  (c)  where  there  are 
no  children,  but  one  parent  lives;  (d)  where  there  are  no 
children  or  parents,  but  brothers  and  sisters  and  children  of 
a  deceased  brother. 

4.  Give  abstract  of  disposition  of  persona]  property  of  an  intestate 

in  your  state.     (Same  details  as  for  real  property.) 

5.  What  law  governs  as  to  the  inheritance  of  real  estate? 

6.  What  law  governs  as  to  the  distribution  of  personal  property? 

7.  An  intestate  in  your  state  leaves  real  estate  that  had  been  left 

him  by  his  maternal  grandfather.  He  leaves  no  children,  but 
father,  mother,  brother,  and  children  of  a  deceased  sister  arc 
living.  To  whom  would  the  property  go?  If  the  real  estate 
had  been  purchased,  to  whom  would  it  go? 


CHAPTER  LXIV 

HOW  TO  MAKE  A  WILL 

§  434.    Who  Can  Make  a  Will 

Persons  under  age  cannot  make  a  will,  except  of  personal 
property.  Generally  at  the  age  of  eighteen,  or  at  an  earlier  age 
in  some  states,  one  may  make  a  will  of  personal  property. 

In  some  states  a  woman  after  her  marriage  can  make  a 
will  only  with  the  consent  of  her  husband. 

In  order  to  determine  whether  a  person  is  old  enough  to 
make  a  will  of  personal  property,  or  whether  a  married  woman 
must  have  her  husband's  consent  in  order  to  make  a  will,  it  is 
necessary  to  consult  the  statutes  of  the  state  where  the  person 
lives,  if  the  will  concerns  personal  property;  of  the  state  where 
the  property  is  located,  if  it  concerns  real  estate. 

"Sound  and  Disposing  Mind/'  The  essential  quality  of 
mind  necessary  for  making  a  will  is  the  ability  to  comprehend 
the  nature,  amount,  and  value  of  one's  property  in  a  general 
^y,  the  number  and  the  claims  of  one's  relatives,  and  the 
eflFect  of  the  will.  Any  form  of  mental  weakness  or  delusion 
which  affects  this  ability  or  affects  a  person's  relations  with 
his  family  at  the  time  of  making  his  will,  will  render  him  in- 
capable  of  making  a  valid  will.  No  other  form  of  mental 
weakness  and  no  other  delusion  will  affect  a  person's  ability 
to  dispose  of  his  property,  and  a  will  made  during  a  lucid 
mterval  in  insanity  will  be  valid. 

S  435.    Restrictions  on  the  Power  of  Making  a  Will 

The  power  to  leave  property  by  will  is  derived  from  the 
law  and  depends  solely  on  the  law  for  its  extent  and  enforce- 

48s 


I 


486 


WILLS  AND  INHERITANCE 


HOW  TO  MAKE  A  WILL 


487 


ment.  This  power  is  not  a  natural  right,  as  is  the  right  of 
living  men  to  own  and  control  property  created  by  their  labor. 
When  brain  and  hand  no  longer  act,  the  natural  right  ceases 
and  the  right  to  control  property  is  only  that  given  by  the 
law. 

Before  property  can  be  distributed  among  those  to  whom 
the  deceased  wished  it  to  go,  his  debts  must  first  be  paid. 
Debts  are  always  paid,  if  possible,  out  of  the  personal  property, 
so  that  if  there  is  no  provision  in  the  will  to  prevent  this,  the 
result  may  be  that  those  to  whom  personal  property  has  been 
left  may  get  nothing,  while  the  gifts  of  real  estate  may  be 
carried  out  in  full. 

In  most  states  there  is  some  restriction  on  the  right  to 
leave  property  to  charity  when  one  dies  leaving  a  husband, 
wife,  or  children  surviving.  In  New  York,  if  the  deceased 
person  leaves  husband,  wife  or  child,  not  more  than  fifty 
per  cent  of  the  property  can  be  left  to  charitable  organiza- 
tions. 

As  a  general  rule,  where  a  woman  marries  after  making  a 
will,  or  where  a  man  marries  and  has  children,  any  will  pre- 
viously made  is  revoked  and  a  new  one  must  be  made.  This 
is  to  protect  the  claims  of  the  husband,  wife,  or  children,  as 
the  case  may  be.  A  man  may  cut  off  children  from  sharing 
in  his  estate,  but  his  intention  to  do  so  must  be  made  evident 
In  some  states  it  is  not  possible  for  a  woman  to  cut  off  her 
husband  from  some  share  in  her  property,  even  by  a  will  ex- 
pressly stating  such  an  intention. 

As  a  usual  rule  where  some  of  the  children  are  bom  after 
tht,  making  of  the  will,  the  whole  will  does  not  fail,  but  the 
share,  which  the  children  would  have  had,  had  there  been  no 
will,  (see  §§431  and  432)  is  taken  out  of  the  property  first 
and  given  to  them,  and  then  the  remainder  of  the  property, 
both  real  and  personal,  is  divided  in  accordance  with  the 
terms  of  the  will. 


2. 


3 


4. 


5. 


6. 


Notes: 

I.  If  you  wish  to  cut  off  any  of  your  children  from  a 
share  of  your  property,  it  should  be  stated  in  plain 
terms  and  the  reason  should  be  given.* 

A  devisee  is  one  to  whom  real  estate  has  been  left 
by  will. 

A  legatee  is  one  to  whom  personal  property  has  been 
left  by  will. 

An  executor  is  a  person  or  trust  company  named 

in  a  will  to  carry  its  provisions  into  effect. 
A  woman  must  make  a  new  will  in  case  of  subse- 
quent marriage,  or  a  man  in  case  of  subsequent 
marriage  and  the  birth  of  children. 
By  setting  aside  a  certain  amount  of  property  for 
division  among  any  children  that  may  be  bom 
after  the  making  of  the  will,  or  expressly  provid- 
ing that  they  are  not  to  share  in  the  property,  the 
upsetting  of  the  will  by  their  birth  may  be  avoided. 
A  provision  may  be  inserted  in  a  will  that  in  case 
debts  to  a  large  extent  have  been  paid  out  of  the 
personal  property,  those  to  whom  the  real  estate 
was  left  shall  contribute  pro  rata,  so  that  each 
person  shall  get  a  proportionate  amount  of  the 
property  left  him  whether  realty  or  personalty. 

§436.    General  Form  for  Wills 

There  are  certain  formalities  which  must  be  complied  with 
m  aU  wills.  The  easiest  way  is  to  remember  how  they  are  to 
be  complied  with.  The  first  paragraph  pf  a  will  should  con- 
tain the  statement  that  it  is  the  ''Last  Will  and  Testament'*  of 
the  person  making  it,  giving  his  name  and  address  in  full 
(including  county  and  state)  and  the  date  on  which  it  is  made 
It  should  also  state  that  the  testator  (the  person  making  a 
will,  revokes  all  previous  wills.) 


7. 


488 


WILLS  AND  INHERITANCE 


ii  I- 


The  following  is  a  brief  form  of  the  correct  commence 
ment  of  a  will: 

I,  John  Smith,  of  206  Lexington  Avenue  in  the  Borough 
of  Manhattan,  City,  County,  and  State  of  New  York,  re- 
voking all  wills  by  me  heretofore  made,  do  hereby  publish 
and  declare  this  my  Last  Will  and  Testament  on  this  ist  day 
of  February,  nineteen  hundred  and  twenty,  in  manner 
and  form  following:  .... 

The  will  must  be  signed  and  sealed  at  the  end  by  the  testa- 
tor. He  must  sign  it  in  the  presence  of  witnesses — it  is  wisest 
to  have  at  least  four,  unless  you  know  how  many  are  required 
in  the  particular  state,  as  the  laws  of  the  various  states  diflFer 
as  to  how  many  there  must  be — ^and  must  declare  to  them  that 
it  is  his  last  will  and  testament  and  ask  them  to  sign  it  as 
witnesses.  The  witnesses  must  sign  the  will  in  his  presence, 
and  must  also  give  their  addresses.  The  law  provides  for  a 
heavy  fine  if  they  omit  the  latter.  In  no  case  must  the  wit- 
nesses be  legatees  or  devisees  under  the  will.  As  witnesses 
are  expected  to  survive  the  testator,  they  should  be  younger 
than  he  is. 

The  best  way  is  to  end  the  will  with  what  is  known  as  an 
attestation  clause,  stating  all  of  these  things.  This  will  remind 
the  maker  of  the  will  of  what  is  required  and  when  the  will 
comes  to  be  probated  will  be  regarded  as  showing  that  it  was 
properly  executed  unless  testimony  is  introduced  to  show  that 
the  statements  were  not  actually  complied  with. 

The  following  is  a  correct  attestation  clause.  It  must  fol- 
lo\y  immediately  after  the  testator's  signature : 

Signed,  sealed,  published,  and  declared  by  the  above- 
named  testator.  John  Smith,  on  the  ist  day  of  February, 
nineteen  hundred  and  twenty,  as  and  for  his  Last  Will 
and  Testament  in  the  presence  of  us  who,  at  his  request  and 
in  his  presence  and  in  the  presence  of  each  other,  have  here- 


HOW  TO  MAKE  A  WILL 

unto  subscribed  our  names  as  witnesses  the  same  day  and 


489 


The  words  "published  and  declared"  refer  only  to  the  state- 
ment  made  to  the  witnesses  before  asking  them  to  sign 

In  New  York  the  letters  L.  S.  are  sufficient  for  a  seal     In 
some  states  a  little  red  wafer,  carried  by  any  legal  stationer 
is  used.  ' 

The  will  of  the  late  Edward  H.  Harriman  which  follows 
IS  brief  and  yet  contains  everything  the  law  requires: 

I,  Edward  H.  Harriman.  of  Arden,  in  the  State  of  New 
York,  do  make,  publish,  and  declare  this  as  and  for  my  last 
will  and  testament,  that  is  to  say: 

I  give,  devise,  and  bequeath  all  my  property,  real  and 
personal,  of  every  kind  and  nature,  to  my  wife,  Mary  W 
Harriman,   to   be   hers,   absolutely   and   forever,  and   I   do 
hereby  nominate  and  appoint  the  said  Mary  W.  Harriman  to 
be  executrix  of  this  will. 

In  witness  whereof  I  have  hereunto  set  my  hand  and  seal 

Edward  H.  Harrima.v.      (l.  s.) 

..   ^Tf\""'^^'^-  P""''''*'''  ="<!  declared  by  the  testator 
as  and  for  his  last  will  and  testament,  in  our  presence,  who 

lh'%r"f '  '""^  '"  •'''  P'*=™"'  ^"<»  '"  'he  presence  of.    . 
astit°nes'i's  "'  '"'  °'  "  ''"""'°  ^"''""''«'  °"  "=>-« 

Charles  A.  Pea  body, 

13  Park  Avenue,  New  York. 

C.  C.  Tegethoff, 
291  East  Seventeenth  Street, 
Flatbush,  L.  I. 

fire/"  Y'f  ^^"^  ^  ^^"'  ^t  is  always  usual  to  put  the  large  gifts 
first  and  the  small  bequests  at  the  end.  ^    ^  '^s 


490 


WILLS  AND  INHERITANCE 


HOW  TO  MAKE  A  WILL 


491 


§437-    Kinds  of  Wills 

Nuncupative  Wills.  Soldiers  and  sailors  when  about  to 
die  in  battle  may  make  their  wills  leaving  personal  property 
by  word  of  mouth  in  the  presence  of  witnesses.  This  is  known 
as  a  nuncupative  will.    It  is  not  a  safe  method  to  employ. 

Holographic  Wills.  In  some  states,  a  will  entirely  in  the 
testator's  own  handwriting  does  not  need  witnesses.  The 
handwriting  is  sufficient  to  prove  it.  This  is  called  a  holo- 
graphic will.  It  is  very  much  safer  to  have  witnesses.  The 
will  is  good  only  in  the  state  and  not  if  it  affects  real  property 
outside  the  state. 

§  438*    Executors 

What  Powers  to  Give  Executors.  The  executor  or  execu- 
tors named  in  a  will  may  be  dead  or  mentally  incapacitated  at 
the  time  of  the  person's  death  or  they  may  refuse  to  serve.  It 
is  wise  to  provide  an  alternative  or  several  alternatives,  or  to 
make  a  trust  company  executor. 

In  case  some  of  the  executors  refuse  to  serve,  the  will 
should  provide  that  the  others  may  act  without  them.  To 
avoid  future  difficulty,  the  will  might  also  state  that  in  case  of 
a  dispute  a  majority  may  decide  any  matter. 

Executors  should  be  given  in  the  will  the  power  to  sell  real 
estate  if  it  is  necessary  in  order  to  pay  debts  or  to  carry  out 
the  provisions  of  the  will.  Otherwise,  where  personal  property 
is  insufficient  to  satisfy  the  gifts  which  were  made  by  the  will, 
the  executors  will  have  to  get  an  order  from  court  before  real 
property  may  be  sold  for  the  purpose. 

In  order  to  induce  an  executor  to  serve,  the  will  should 
relieve  him  from  liability  for  anything  except  dishonesty. 

§  439.    Thistees 

If  it  is  necessary  to  hold  property  for  any  length  of  time 
before  final  disposition,  trustees  must  be  appointed,  or  the 
executors  may  be  authorized  to  act  as  trustees. 


In  naming  trustees,  it  is  also  wise  to  make  provisions  for 
an  alternative  in  case  any  trustee  named  cannot  serve.  If 
there  is  an  enforceable  trust  the  court  will,  on  application, 
appoint  a  trustee  to  take  charge  of  it,  but  if  the  maker  of  the 
will  wished  to  exercise  his  own  judgment  he  should  name  his 
choice. 

Unless  the  united  judgment  of  all  the  trustees  is  desired 
on  matters  connected  with  their  trust,  if  there  are  several 
trustees,  the  will  should  provide  that  a  majority  may  act  in  any 
matter.  Trustees  should  always  be  given  powers  to  sell  any 
of  the  property  from  time  to  time  when  it  becomes  necessary 
to  protect  the  estate,  and  to  reinvest  the  proceeds. 

As  the  range  of  investment  which  the  law  allows  a  trustee 
is  very  limited,  it  is  a  good  idea  to  provide  in  the  will  in  what 
kinds  of  property,  stocks,  bonds,  etc.,  he  is  to  be  allowed  to 
invest.  Trustees  may  be  given  the  power  to  appoint  their  own 
successors  in  any  way  that  the  person  making  the  will  thinks 
fit. 

At  the  present  time  it  is  the  better  practice  to  name  a  trust 
company  as  trustee  instead  of  private  persons. 

In  many  cases  consideration  of  the  circumstances  will  lead 
to  the  appointment  of  a  trust  company,  or  a  bank  entitled  to 
exercise  fiduciary  functions,  to  act  as  executor  or  trustee,  for 
reasons  so  generally  accepted  that  they  are  now  almost 
axiomatic.    A  few  of  these  reasons  are: 


I. 
2. 


The  financial  responsibility  of  the  trust  company. 

Its  continued  existence:  the  individual  named  as 
executor  may  die— a  corporation  has  unlimited 
existence,  and  the  maker  of  the  will,  therefore, 
is  assured  that  the  executor  of  his  choice  will  be 
living  and  competent  to  act. 

Accumulated  experience:  the  individual  may  act  as 
executor    once    in    his    lifetime— the    corporate 


492 


s. 


WILLS  AND  INHERITANCE 

executor  or  trustee,  whose  business  it  is  to  act 
in  such  matters,  is  constantly  accumulating  ex- 
perience which  no  individual  can  hope  to  possess. 

Financial  judgment:  the  directors  and  officers  of  a 
well-organized  corporation,  through  the  general 
transaction  of  their  business,  are  usually  far  better 
able  to  invest  funds  and  handle  business  matters 
than  an  individual. 

An  impartial  viewpoint:  a  corporate  executor  is  not 
concerned  in  family  disputes,  has  no  interests  to 
serve  except  the  execution  of  the  plain  directions 
in  the  will  and  the  protection  of  the  interests  of 
the  beneficiary.  It  cannot  profit  through  its  acts 
other  than  by  the  commissions  which  it  receives 
by  law. 

"Whoever  is  appointed  executor,  all  these  factors  should 
be  borne  in  mind.  The  executor  selected  should  be  one  who 
reasonably  may  be  expected  to  be  living  at  the  time  the  will 
goes  into  effect,  should  be  responsible,  of  good  judgment,  and 
absolutely  impartial  in  the  exercise  of  the  great  trust  com- 
mitted to  him." 

§440.    Trust  Estates 

A  trust  is  a  fiduciary  relation.  It  is  usually  created  by 
will  or  deed.  Two  or  more  trustees  are  usually  appointed. 
When  one  dies  the  other  has  power  to  act  unless  the  instru- 
ment provides  for  a  successor  to  be  appointed.  When  trustees 
are  directed  or  authorized  to  act,  all  must  join  unless  the  deed 
of  trust  provides  that  a  majority  can  act. 

A  trustee's  powers  will  depend  on  the  instrument  creating 
the  trust.  Unless  specifically  authorized  he  cannot  sell  or 
mortgage  the  trust  property. 

Trusts,  trustees,  and  trust  estates  are  all  under  the  con- 


HOW  TO  MAKE  A  WILL 


493 


trol  of  courts  of  equity.  For  any  abuse  of  authority  by  a 
trustee  the  remedy  would  be  in  a  court  of  equity.  If  necessary 
the  trustee  will  be  removed  and  a  successor  appointed.  If 
circumstances  make  it  difficult  or  impossible  for  the  trustee  to 
decide  as  to  the  proper  action  to  take,  he  may  ask  the  court 
to  make  an  order  in  the  matter.  This  will  relieve  him  from 
responsibihty. 

§  441.    Statutes 

The  form  in  which  a  will  of  real  property  must  be  drawn, 
as  well  as  the  disposition  of  the  property  by  its  means,  is 
governed  by  the  law  of  the  state  where  the  property  is  located. 

A  will  of  personal  property  must  be  drawn  up  in  accord- 
ance with  the  law  of  the  state  of  which  the  testator  is  a  resident 
at  the  time  of  his  death. 

Any  will  must  therefore  comply  with  the  laws  of  the  state 
of  which  the  testator  is  a  resident  and  with  the  laws  of  any 
other  states  in  which  real  property  devised  by  the  will  is 
situated.  If  the  precaution  is  taken  to  have  at  least  four  wit- 
nesses, it  will  satisfy  the  law  of  most  of  the  states  of  the 
Union. 

But  in  order  to  find  the  regulations  governing  the  manner 
in  which  property  may  be  left,  the  real  property  law  of  the 
state  in  which  the  property  is  located  and  the  personal  property 
law  of  the  state  in  which  the  testator  resides  must  be  con- 
sulted. 

Death  of  Beneficiary,  In  most  cases  a  general  clause  is 
added  providing  that  all  the  residue  of  the  property  goes  to 
some  particular  legatee.  This  portion  so  left  is  called  the 
"residuary  estate."  In  case  of  the  death  of  any  beneficiaries 
before  the  death  of  the  testator,  the  legacies  would  lapse, 
except  in  the  case  of  legacies  to  children  or  to  son-in-law  or 
to  daughter-in-law,  whose  children  would  inherit  after  them. 
This  lapse  may  be  avoided  by  leaving  the  property  to  the 


494 


WILLS  AND  INHERITANCE 


beneficiary  and  if  he  die  before  the  testator,  to  his  heirs,  his 
wife  or  his  next  of  kin,  or  to  another  beneficiary. 

As  many  other  beneficiaries  may  be  named  as  the  testator 
desires.  In  case  the  property  is  to  be  given  in  this  way  it  is 
necessary  to  provide,  before  using  the  words  of  gift,  that  the 
person  is  to  take  the  property  only  if  he  is  living  at  the  time, 
and  if  not  that  it  is  to  go  to  someone  else. 

The  following  is  the  proper  way  to  make  such  a  provision: 

If  Henry  Adams  shall  be  living  at  my  death,  then  I  give 
and  devise  to  him  and  his  heirs  forever  (description  and 
location  of  property),  but  if  the  said  Henry  Adams  shall  die 
before  me,  then  I  give  and  devise  the  said  property  to  James 
Green  and  his  heirs  forever. 

Or, 

then  the  said  property  shall  be  added  to  and  form  a  part  of 
my  residuary  estate. 

In  case  of  a  trust  the  same  trustee  may  be  named,  and 
simply  directed  to  pay  the  income  over  to  the  second  legatee,  in 
case  the  first  beneficiary  is  dead  at  the  time  the  will  takes  effect. 

If  the  residuary  estate  is  not  disposed  of  by  will,  it  would 
be  distributed  as  if  there  were  no  will  according  to  the  laws 
of  the  state. 

It  is  said  to  be  the  custom  at  lawyers'  dinners  to  toast  the 
man  who  makes  his  own  will,  as  such  a  course  usually  results 
in  much  profitable  litigation. 

Notes: 

I.  If  possible,  avoid  complex  and  long-term  disposi- 
tions of  property. 

Employ  a  competent  lawyer  and  make  sure  that  he 
knows  what  property  you  have  and  what  you  wish 
done  with  it 

If  you  change  your  residence  after  making  a  will, 
be  sure  to  see  that  it  complies  with  the  law  of  the 
new  state  of  residence  or  else  make  a  new  will. 


2. 


3. 


HOW  TO  MAKE  A  WILL 


495 


A  simple  will  leaving  property  outright  to  members  of  your 
own  family  might  safely  be  drawn  in  accordance  with  the  rules 
laid  down  here,  but,  unless  the  disposition  of  the  property  is 
very  simple,  as  in  the  case  of  the  Harriman  will,  the  best  thing 
to  do  is  to  consult  a  reliable  lawyer.  It  is  impossible  to  give 
all  the  details  of  the  local  laws  relating  to  wills  in  a  work  of 
this  scope. 

§  44a.    How  to  Dispose  of  Real  Property 

There  are  various  ways  in  which  a  person  may  dispose  of 
his  real  property  by  will  after  his  death.  He  may  give  it  to 
someone  outright;  or  to  one  person  for  life,  and  absolutely  to 
another  at  the  first  person's  death;  or  to  several  people  in 
succession  for  life,  and  to  another  absolutely  on  the  death  of 
the  last  person. 

The  proper  form  of  words  for  giving  property  outright  is: 

I  give  and  devise  (description  and  location  of  property) 
to  my  nephew,  John  Smith,  of  Arlington,  New  Jersey,  and 
his  heirs  forever. 

The  proper  form  of  words  to  give  property  for  life  is: 

I,  Mary  Green,  give  and  devise  (describe  property  fully) 
to  my  brother,  Henry  Adams  of  Syracuse,  New  York,  for 
his  life,  and  upon  his  death  I  give  and  devise  (naming  the 
property)  to  my  son  James  Green  and  his  heirs  forever. 

It  would  be  perfectly  proper  to  direct  that  on  Henry 
Adams's  death  the  property  shall  go  to  another  (in  some  states 
to  several  others)  for  life  before  giving  it  finally  to  James 
Green.  In  New  York  there  could  be  only  two  persons  to  have 
it  for  life  altogether,  and  if  more  were  named,  James  Green 
would  get  it  on  the  death  of  the  second.  The  persons  named 
must,  however,  be  living  at  the  death  of  the  person  making  the 
will.  One  could  not  leave  property  for  life  to  a  child  unborn 
at  the  time  of  one's  death.     If  no  one  is  mentioned  to  whom 


496 


WILLS  AND  INHERITANCE 


the  property  is  to  go  at  the  conclusion  of  the  last  life  estate, 
it  will  then  go  to  the  legal  heir  or  heirs.    (See  §  431. ) 

The  property  may  be  given  to  one  person  for  the  life  of 
another.    In  that  case  the  will  would  read  thus: 

I  give  and  devise  (description  and  location  of  property) 
to  my  brother  Henry  Adams,  during  the  life  of  my  son  James 
Green,  and  upon  James  Green's  death  I  do  give  and  devise 
said  property  to  my  grandson  Samuel  Brown,  to  him  and 
his  heirs  forever. 

If  Henry  Adams  should  die  before  James  Green,  the  right 
to  make  use  of  the  property  during  the  rest  of  James  Green's 
life  would  be  regarded  as  personal  property,  and  Henry 
Adams  could  leave  it  by  will  or  the  law  would  dispose  of  it 
as  explained  in  §  432.  Upon  James  Green's  death  the  property 
would  go  to  Samuel  Brown  outright. 

Property,  as  a  usual  rule,  could  be  left  in  this  way  only 
during  the  life  of  one  persoa 

But  the  proceeds  of  property  may  be  accumulated  for  a 
child  and  not  paid  over  until  he  becomes  of  age.  A  good 
direction  for  an  accumulation  would  be  as  follows: 

I  hereby  give  and  devise  (description  and  location  of 
property)  to  my  grandson  Samuel  Brown,  to  him  and  his 
heirs  forever,  and  I  direct  my  executors  to  hold  the  said 
property  and  to  accumulate  the  rents,  issues,  and  profits 
thereof,  until  my  said  grandson  shall  come  of  age,  and  at 
that  time  to  pay  the  same  over  to  him. 

It  is  also  possible  to  leave  property  to  one  person  or  to  a 
tnist  company  in  trust  for  another.  The  trustee  in  whose  care 
it  is  left  manages  it  and  pays  over  the  proceeds  to  the  person 
to  whom  they  were  given,  and  accounts  to  the  court  for  his 
dealings  with  the  trust  property. 

The  proper  form  of  words  to  create  a  trust  is: 

I  hereby  give  and  devise  to  Henry  Adams  (name  and 
description  of  property),  to  him  and  his  heirs  and  succes- 


HOW  TO  MAKE  A  WILL  497 

sors  in  trust,  to  collect  the  rents,  issues,  and  profits  and  to 
pay  them  over  to  James  Green. 

James  Green  cannot  dispose  of  the  property  itself  but  only 
of  the  proceeds.  Henry  Adams  cannot  make  use  of  the  pro- 
ceeds, but  may  do  all  necessary  things  with  reference  to  the 
property,  such  as  leasing  it.  He  may  be  held  accountable, 
however,  by  James  Green  for  any  breach  of  trust  or  negligence 
in  his  management. 

In  order  to  be  sure  as  to  just  what  can  be  done  with  prop- 
erty, it  is  necessary  to  consult  the  real  property  law  of  the 
state  where  the  property  is  located,  as  the  provisions  vary 
slightly  in  the  different  states. 

The  creation  of  trusts  is  highly  technical  and  should  not 
be  attempted  save  under  the  advice  of  a  competent  lawyer. 

If  you  desire  to  leave  real  property  to  charitable  organiza- 
tions, including  schools  and  colleges,  it  is  necessary  to  consult 
the  law  of  the  state  where  the  property  is  located  to  find  out 
whether  you  can  so  leave  it,  and,  if  so,  with  what  formalities 
you  must  comply ;  and  the  law  of  the  state  where  the  organiza- 
tion is  located  to  see  whether  it  can  take  the  property.   ^ 

Note: 

I.  In  devising  real  property  it  should  be  described  so 
completely  that  it  will  be  certain  as  to  what  is  in- 
cluded; and  to  avoid  mistake  its  location  should 
be  given  definitely. 


§  443.    How  to  Dispose  of  Personal  Property 

In  disposing  of  personal  property,  one  may  either  leave  a 
certain  amount  of  money  to  a  person,  or  may  provide  that 
some  specific  piece  of  personal  property,  such  as  a  piece  of 
jewelry  or  an  article  of  furniture,  or  some  special  stock  or 
bonds,  shall  be  given  him. 

Where  a  specific  piece  of  property  is  given  to  anyone,  any 


49« 


WILLS  AND  INHERITANCE 


debts  will  have  to  be  paid  out  of  the  other  personal  property 
hrst.  If  there  is  not  enough  of  this  other  personal  property 
to  pay  the  debts,  the  specific  property  will  be  sold. 

On  the  other  hand,  where  amounts  of  money  are  left  to 
particular  persons,  any  personal  property  not  specifically  given 
to  anyone  will  be  sold  in  order  to  get  funds  to  pay  the  legacy. 
The  debts  will  be  paid  out  of  this  property  first,  and  if  there 
IS  not  enough  of  it  to  pay  both  the  debts  and  the  legacies,  those 
to  whom  money  has  been  left  may  get  nothing. 

The  proper  form  of  words  to  use  in  making  a  gift  of 
personal  property  by  will  is; 

I    give    and    bequeath     (description    of    the    personal 
property)  to  so-and-so. 

The  will  may  provide  that  in  case  the  person  to  whom  the 
gift  IS  made  is  dead  at  the  time  the  legacy  takes  effect,  another 
person  is  to  have  the  property,  or  that  the  gift  shaU  be  added 
to  and  form  a  part  of  the  residuary  estate.  Or  the  will  may 
provide  that  the  person  named  is  to  have  the  property  only 
under  certain  conditions,  and  in  case  these  are  not  fulfilled  it 
is  to  go  to  someone  else. 

Personal  property  may  be  left  in  trust;  then  the  trustee  has 
control  of  the  property  and  pays  over  the  income  as  described 
m  §  440. 

Before  making  a  will  of  personal  property,  the  testator 
should  consult  the  personal  property  law  of  the  state  where 
he  resides,  and  if  he  moves  to  another  state  at  any  time  his 
will  must  be  changed  to  conform  to  its  laws. 

Note: 

I.  Generally  people  err  who  tie  up  property  for  long 
periods  after  they  have  gone.  It  is  a  form  of 
egotism  that  leads  a  man  to  try  to  impose  his 
control  on  those  he  leaves  behind. 


HOW  TO  MAKE  A  WILL 


499' 


§  444.    The  Residuary  Clause  and  Its  Uses 

It  frequently  happens  that  a  person  has  more  property 
when  he  dies  than  he  had  at  the  time  he  mad  2  his  will.  Or  it 
may  happen  that- the  person  to  whom  personal  property  has 
been  left  dies  before  the  will  takes  effect,  thus  leaving  that 
property  undisposed  of.  A  convenient  way  of  providing  for 
either  of  these  contingencies  is  to  make  a  general  clause  at  the 
end  of  the  will  covering  all  such  property  and  providing  to 
whom  it  shall  be  left. 

This  is  called  the  "residuary  clause"  and  the  person 
designated  is  called  the  "residuary  legatee."  It  is  usually  ex- 
pressed in  this  way: 

All  the  rest,  residue,  and  remainder  of  my  estate  I  give, 
devise,  and  bequeath  to  so-and-so. 

This  covers  both  real  and  personal  property  that  may  have 
been  left  undisposed  of  when  the  time  comes  to  put  the  will 
into  operation.  It  is  usual  to  leave  the  residue  to  near  rela- 
tives or  to  the  principal  beneficiary  of  a  will. 

If  the  residue  were  not  left  specifically,  it  would  have  to 
be  distributed  as  provided  by  the  state  laws  governing  dis- 
tribution. 


Note: 


I. 


The  residue  of  an  estate  may  amount  to  a  consider- 
able sum,  and  it  is  important  to  make  careful 
disposition  of  it  in  the  residuary  clause. 


§  445.    What  to  Do  With  the  Will 

"When  a  will  is  made,  in  order  to  avoid  a  possible  long 
and  trying  search  for  it,  it  is  advisable  to  file  it  in  a  sealed 
envelope  with  a  bank  or  trust  company  in  the  state ;  or  it  may 
be  deposited  for  safekeeping  with  any  County  Clerk  or  Sur- 
rogate, or  with  the  Register  of  Deeds  in  the  county  in  which 


Soo 


WILLS  AND  INHERITANCE 


IJn  fi^  u  "  «"'*='-»"y  «  ?'««  inconvenience  to  have 
a  wiU  fUed  ,n  the  maker's  safc^eposit  box.  for  when  a  person 
dies,  no  one  is  entitled  to  have  access  to  his  safe-deposit  box 
except  his  legal  representatives  duly  appointed  by  the  court 
Who  such  representatives  are  cannot  be  determined  untU  the 
will  IS  found.  In  order  to  obtain  the  will,  it  is  therefore 
necessanr  to  get  an  order  from  the  court  permitting  the  open- 
ing of  the  safe-deposit  box  for  the  purpose  of  discovering  the 
aocument."  ^ 


Review  Questions 


I, 


3. 


4. 


5. 


"^nvlZr^"  ',o"  T  ^'^  ^'^^^^  °^  '"^"^^^  ^^^^"-^^  would 
invalidate  a  will?    Is  it  easy  "to  break"  a  will? 

Is  the  right  to  make  a  will  a  natural  right?  What  restrictions 
on  the  right  are  found  in  your  state? 

What  is  the  rule  as  to  paying  a  decedent's  debts?  If  the  bene- 
ficiary dies  before  the  testator,  what  happens  to  the  legacy? 
How  may  this  be  avoided  ?  ^' 

What  number  of  witnesses  is  required  in  your  state?  When 
where,  and  how  must  witnesses  sign  a  will  ? 

What  is  a  will  ?  What  is  a  nuncupative  will  ?  What  is  a  holo- 
graphic wi  ?  Draw  a  brief  form  of  will  leaving  all  property 
to  wife.    Why  IS  It  safer  to  have  a  competent  lawyer  drVw  a 

6.  What  are  the  functions  of  an  executor?    Of  an  administrator? 

7.  Does  the  law  of  a  place  where  the  will  is  made  affect  it?    If  a 

testator  lives  in  Ohio  and  owns  land  in  Pennsylvania,' which 
law  would  govern  his  will? 
a    What  would  be  done  with  personal  property  owned  by  a  testator 
but  not  mentioned  in  his  will  ? 

^    "i.""  '^TI  «  sole  legatee  of  personal  property,  does  he  own 

It?    What  defines  the  powers  of  trustees  under  a  will? 
^^'    ^^^^  's  a  residuary  clause?    A  residuary  legatee? 

-Why  You  Should  Make  .  Win."  Guaranty  Trim  Company  of  New  York. 


CHAPTER  LXV 

HOW  TO  CHANGE  OR  TO  REVOKE  A  WILL 

§  446.    How  to  Change  a  Will 

H  It  is  desired  to  change  a  will,  changes  should  not  be 
made  in  the  instrument  itself.  Any  erasures  or  interlineations 
are  likely  to  make  the  will  invahd.  No  changes  or  alterations 
will  take  effect  unless  it  can  be  proved  that  they  were  there 
when  the  will  was  originally  signed.  If  there  are  any  erasures 
or  interlineations  in  a  will,  the  attestation  clause  should  state 
that  they  were  made  before  the  will  was  signed. 

The  proper  way  to  change  a  will  is  by  drawing  up  another 
paper  called  a  codicil  in  the  same  form  as  the  will  itself  except 
that  it  states  that: 

I,  John  Smith,  of  206  Lexington  Avenue  in  the  Borough 
of  Manhattan,  City,  County,  and  State  of  New  York,  on 
the  3rd  day  of  January,  nineteen  hundred  and  twenty,  do 
hereby  publish  and  declare  this  codicil  to  my  Last  Will 
and  Testament  which  is  dated  February  4,  1919,  and  in 
manner  and  form  following:  .... 

The  codicil  must  be  signed,  sealed,  and  declared  to  be  such 
in  the  presence  of  witnesses,  in  the  same  way  as  the  original 
will,  and  these  witnesses  must  be  asked  to  sign  and  must  state 
their  addresses. 

If  it  is  desired  simply  to  add  something,  the  codicil  pro- 
ceeds in  the  same  way  as  the  original  will.  If  it  is  desired  to 
make  a  change  in  any  provision  of  the  original  will,  the  para- 
graph in  which  the  provision  occurs  should  be  referred  to. 
For  instance: 

501 


502  WILLS  AND  INHERITANCE 

Whereas  in  paragraph  two  of  my  said  Ust  Will  and 
Testament,  I  did  give  and  devise  certain  real  property  to 
my  son,  Peter  Lane,  I  do  now  revoke  said  gift  and  do 
hereby  give  and  devise  the  said  real  property  to  my  nephew, 
Richard  Lee,  to  him  and  to  his  heirs  forever. 

§  447.    How  to  Revoke  a  Will 

A  wiU  may  be  revoked  only  by  the  action  of  the  testator 
himself.  He  may  direct  someone  else  to  perform  the  actual 
operations  for  him. 

No  destruction  or  other  unauthorized  interference  bv  any 
other  person  will  prevent  the  will  from  taking  effect.  If  the 
will  is  partly  or  entirely  destroyed,  it  may  be  proved  by  the 
testimony  of  witnesses,  or  of  the  lawyer  who  drew  the  will. 

H  the  testator  attempts  to  alter  a  will  by  making  erasures 
or  interlineations,  he  may  revoke  it  without  intending  to. 

The  proper  way  to  revoke  a  will  is  for  the  testator  either 
to  destroy  or  to  cancel  it  by  making  some  mark  or  tear  in  it, 
or  by  making  a  new  will  stating  that  the  former  one  is  revoked. 

A  codicil  may  be  revoked  in  the  same  v/ay.  If  a  codicil 
is  to  be  revoked,  the  whole  will  had  better  be  executed  again, 
since  by  revoking  a  codicil  the  clause  affected  in  the  original 
will  may  not  be  revived. 

A  radical  change  in  circumstances,  such  as  the  birth  of 
issue  after  testator's  death,  may  have  the  effect  of  revoking 
his  will  unless  the  will  states  that  it  should  not  be  revoked  by 
such  changed  conditions. 

The  safest  way  to  revoke  a  will  is  to  destroy  it  entirely 
and  make  a  memorandum  of  the  fact.  Otherwise  it  may  be 
supposed  to  be  lost  or  wrongfully  destroyed  by  some  unau- 
thorized person.  If  it  remains  in  your  possession  during  your 
lifetime,  and  after  your  death  is  proved  by  your  executors  or 
administrators,  and  a  later  will  is  lost,  it  may  take  effect. 
Provision  should  always  be  made  in  the  first  clause  of  a  will 
that  all  former  wills  are  revoked. 


CHANGING  OR   REVOKING   A   WILL 

Review  Questions 


503 


I. 

2. 

3. 
4. 


How  should  a  will  be  changed? 

May  any  of  the  formalities  necessary  to  the  execution  of  a  will 

be  omitted  in  the  execution  of  a  codicil  ? 
How  should  a  will  be  revoked  ? 
If  a  will  is  accidentally  lost  or  destroyed  before  or  after  the 

death  of  the  testator,  and  the  lawyer  who  drew  the  will  has 

a  copy,  can  it  be  probated? 
If  a  codicil  is  revoked,  why  should  a  new  will  be  made? 


CHAPTER  LXVI 

OTHER  WAYS  OF  DISPOSING  OF  PROPERTY 

AFTER  DEATH 

S448.    Deeds  of  Trust 

By  making  a  deed  of  trust  it  is  possible  to  avoid  the  neces- 
sity of  drawing  a  will  and  incidentally  the  necessity  of  settling 
up  the  estate.  Such  an  instrument  which  conveys  the  property 
to  a  trust  company  or  other  trustee  in  trust,  provides  that  the 
person  deeding  the  property  is  to  have  the  use  of  the  profits 
of  h,s  own  property  during  his  lifetime,  and  then  disposes  of 
It  after  his  death  to  the  various  persons  whom  he  selects  as 
benenciartes. 

By  such  a  deed  of  trust  the  person  may  make  himself 
trustee  for  his  hfe  and  thus  leave  the  management  of  the 
property  m  his  own  hands.  The  objection  to  such  a  disposi- 
tion is  that  it  makes  it  difficuU  to  sell  any  of  the  property,  since 
purchasers  will  usually  want  a  release  from  the  persons  who 
are  to  take  the  property  after  the  trustee's  death. 

This  may  be  avoided  by  providing  in  the  deed  of  trust  that 
the  person  making  it  reserves  the  right  to  revoke  or  to  change 
the  whole  or  any  part  of  it  at  any  time.  He  may  then  revoke 
and  change  part  of  it  whenever  he  wishes  to  dispose  of  any 
property  during  his  lifetime.  Of  course,  there  is  the  trouble 
and  the.expense  of  drawing  a  new  deed  or  making  amended 
deeds  whenever  this  is  done.  If  the  person  owed  money  or 
afterward  got  into  debt,  such  a  deed  of  trust  would  be  of  no 
effect  Any  arrangement  of  the  kind  would  have  to  be  worked 
out  under  competent  legal  supervision. 

S04 


OTHER  WAYS  OF  DISPOSING  OF  PROPERTY        505 

§449.     Gifts  in  View  of  Death 

A  person  who  believes  himself  incurably  ill  and  at  the  point 
of  death,  may  make  gifts  to  take  effect  upon  his  death.  If 
the  testator  should  recover,  the  gifts  would  not  take  effect. 

In  order  to  make  gifts  of  personal  property  effective,  the 
property  itself  should  be  handed  to  the  person  to  whom  it  is 
to  be  given  either  by  the  testator  himself  or  by  someone  else 
at  his  direction,  if  possible.  If  the  gift  consists  of  a  bulky 
article,  something  to  represent  it  may  be  given.  For  instance, 
the  key  of  a  trunk  or  of  a  chest  might  be  handed  over.  The 
gift  of  a  savings  bank  book  amounts  to  a  gift  of  the  bank 
account.  A  gift  may  be  described  as  a  gratuitous  transfer  of 
personal  property. 

Note: 

I.  Property  given  in  view  of  death  must  be  actually 
handed  over.  A  promise  to  make  a  gift  is  not  a 
gift  causa  mortis  and  cannot  be  enforced. 


I. 


Review  Questions 

How  may  a  deed  of  trust  be  made  so  as  to  give  the  donor  the 
use  of  the  property  during  his  life  and  have  it  pass  to  his 
beneficiary  when  he  dies? 

Would  such  an   arrangement  prevent  creditors   from  collecting 

their  claims? 
What  is  a  gift?    What  is  a  gift  rai/^a  wor/wf    Can  a  promise  to 

make  a  gift  be  enforced?    Why  not? 


ilj, 


THE  SETTLEMENT  OF  AN  ESTATE 


507 


CHAPTER  LXVII 

THE  SETTLEMENT  OF  AN  ESTATE 

§  450.    If  the  Deceased  Person  Left  a  Wm 

If  the  deceased  person  left  a  will,  the  first  thing  to  do 
would  be  to  probate  the  will.  If  the  deceased  left  any  personal 
property,  the  will  must  be  probated  in  the  state  of  which  he 
was  a  resident  when  he  died.  Probating  a  will  means  that  it 
must  be  presented  and  proved  in  a  special  court  called  a  pro- 
bate, surrogate's,  or  orphans'  court.  Any  person  designated 
m  a  wiU  as  executor,  devisee,  or  legatee,  or  any  other  person 
interested  m  the  estate,  or  a  creditor  may  ask  that  a  will  be 
probated. 

^  Notice  must  be  given  of  the  probate  to  everyone  who  re- 
ceives  anything  under  the  will,  and  to  everyone  to  whom  the 
law  would  have  given  the  property  had  there  been  no  will 
(see  §§  431  and  432).  This  is  expressed  sometimes  as  "every 
person  interested,"  which  would  include  every  person  entitled 
to  share  in  the  estate  or  the  proceeds  thereof,  as  husband,  wife, 
legatee,  next  of  kin.  heir,  devisee,  assignee,  grantee,  or  other^ 
wise.  Usually  the  procedure  incident  to  probate  requires  the 
aid  of  a  lawyer. 

The  witnesses  to  the  will  itself,  or  at  least  some  of  them, 
are  always  examined  as  a  matter  of  formal  proof  before  ad- 
mitting the  will  to  probate.  If  there  is  a  contest,  the  testimony 
of  thejawyer  who  drew  the  will  and  of  anyone  familiar  with 
the  circumstances  may  be  given  to  prove  it,  or  to  prove  the 
testator's  mental  capacity  at  the  time  it  was  drawn.  It  is  the 
duty  of  the  person  offering  the  will  for  probate  to  obtain  the 
necessary  testimony. 

506 


If  the  probate  of  the  will  is  contested,  those  who  oppose 
its  admission  to  probate  will  be  heard  and  sometimes  contested 
will  cases  run  on  to  great  length  and  cost.  After  both  sides 
have  been  heard  and  the  case  has  been  argued,  it  is  decided  by 
the  surrogate  or  probate  judge,  who  will,  unless  there  is  good 
cause  for  rejection,  make  a  decree  admitting  it  to  probate  as  a 
valid  will. 

When  there  is  no  contest,  all  concerned  sometimes  consent 
to  the  probate  to  save  time  and  the  will  is  admitted  forthwith. 

An  executor  is  an  individual  or  a  trust  company  which  by 
designation  of  a  will  is  to  carry  it  into  effect  If  the  will  is 
admitted  to  probate,  the  executors  or  executor  named,  if  com- 
petent, will  receive  letters  testamentary  from  the  court.  "Let- 
ters testamentary"  is  the  legal  term  for  the  instrument  issued 
by  a  probate  court  authorizing  an  executor  to  carry  out  the 
provisions  of  a  will.  A  minor,  an  alien,  a  criminal,  or  anyone 
mentally  or  morally  deficient  would  not  receive  letters.  An 
executor  derives  his  powers  from  the  will,  but  cannot  act  until 
he  receives  letters  from  the  court  of  probate. 

Where  a  long  contest  over  the  will  is  likely,  a  temporary 
administrator  pendente  lite,  i.e.,  pending  the  litigation,  is  ap- 
pointed. It  is  his  duty  to  attend  to  all  matters  concerning  the 
estate  that  would  suffer  by  delay.  A  temporary  administrator 
may  be  appointed  in  any  case  when  it  is  necessary. 

If  personal  property  of  the  deceased  is  situated  in  other 
states,  it  may  become  necessary  to  take  out  letters  of  adminis- 
tration in  those  states  also.  These  are  called  "ancillary  let- 
ters." In  every  state  the  detail  of  settling  an  estate  is  regulated 
by  statutes  which  should  be  consulted. 

If  the  will  does  not  provide  that  the  executor  is  to  serve 
without  giving  bond,  he  will  in  many  cases  be  required  to  give 
a  bond  in  double  the  amount  of  the  property  belonging  to  the 
estate  and  with  a  certain  number  of  sureties,  before  letters  will 
be  issued  to  him.    In  New  York  this  is  a  matter  of  discretion 


\f 


¥\ 


ti  I 


WILLS  AND  INHERITANCE 


THE  SETTLEMENT  OF  AN  ESTATE 


with^  die  surrogate.    It  is  the  duty  of  the  executor  to  take  the 
official  oath  and  to  file  his  bond  promptly. 

Out  of  the  first  claims  to  be  paid  will  be  the  inheritance 
tax  If  there  is  one.  Each  state  allows  a  certain  amount  of 
exemption  of  property  left  to  near  relatives.  The  statutes 
should  be  consulted  to  find  out  what  their  rights  are. 

It  will  usually  be  necessary  to  have  the  property' appraised 
by  one  or  more  disinterested  appraisers  to  ascertain  the  amount 
of  the  inlieritance  tax.  Unless  the  will  provides  that  the  in- 
heritance tax  is  to  be  paid  out  of  the  estate,  it  must  be  paid 
out  of  the  property  going  to  each  individual  beneficiarv  If 
the  beneficiary  does  not  want  property  sold  to  pay  the  tax 
he  may  pay  the  tax  out  of  his  own  pocket  and  take  the  article 
left  him  as  it  is. 

An  executor  is  not  bound  to  serve  and  where  the  executor 
named  m  the  will  fails  to  qualify,  the  law  appoints  the  person 
most  interested  in  the  estate,  usually  a  relative,  as  an  ad- 
mmistrator  cum  testamento  annexo  (with  the  will  annexed) 
After  his  appointment  his  duties  are  precisely  those  of  an 
executor.  He  sees  that  the  provisions  of  the  will  are  carried 
out.  Commissions  based  on  the  amount  of  estate  actually 
received  and  paid  over  are  allowed  by  law. 

§  451.    If  the  Deceased  Person  Did  Not  Leave  a  Will 

If  there  was  no  will  the  facts  of  death  and  intestacy  must 
be  proved  and  then  the  nearest  relative  entitled  to  a  share 
m  the  estate  (see  §§  431  and  432)  may  be  appointed  adminis- 
trator. Where  several  persons  are  thus  entitled,  such  as 
children,  brothers  and  sisters,  nephews  and  nieces,  etc  men 
will  be  preferred  to  women,  and  unmarried  women  to  married 
women.  All  of  the  persons  so  entitled  may  be  appointed  ad- 
mmistrators  together,  or,  by  the  consent  of  all  who  are  in  anv 
way  interested,  an  outside  person  may  be  appointed. 

If  no  one  else  takes  out  letters  of  administration  and  there 


509 


arc  any  debts  or  claims  against  the  estate,  a  creditor  or  a 
claimant  is  entitled  to  letters  of  administration. 

An  administrator  will  always  be  required  to  give  bond  with 
sureties  in  double  the  amount  of  the  property  belonging  to  the 
estate,  to  guarantee  that  he  will  faithfully  perform  his  duties. 
His  commission  is  the  same  as  that  of  an  executor. 

The  duties  of  an  administrator  are  to  advertise  for  claims 
against  the  estate,  to  pay  those  which  seem  proper  and  to 
reject  the  others,  leaving  them  to  be  settled  by  suit ;  and  finally 
to  distribute  the  property  to  those  persons  who  are  entitled  to 
it  according  to  law. 

The  administrator  should  at  once  ascertain  and  settle  all 
the  inheritance  taxes  and  make  claims  for  exemptions  due 
anyone  interested  in  the  estate.  As  a  usual  rule,  the  estate 
must  be  appraised  by  one  or  more  disinterested  appraisers  for 
the  purpose  of  ascertaining  the  inheritance  tax. 

The  executor  or  the  administrator  is  bound,  if  assets  will 
permit,  to  perform  the  contracts  of  the  deceased  in  so  far  as 
they  do  not  call  for  the  personal  qualities  of  the  deceased.  If 
he  continues  a  business  in  which  the  deceased  was  engaged,  he 
must  account  for  the  profits,  if  any,  but  must  himself  assume 
the  losses  of  a  continuance  in  business,  unless  the  will  provides 
that  such  possible  losses  may  be  paid  out  of  the  estate. 

If  the  property  is  located  in  several  states,  it  may  become 
necessary  to  take  out  letters  of  administration  in  each  one. 
Generally  the  courts  prefer  to  give  such  letters  to  a  resident  of 
the  jurisdiction  where  they  are  granted,  but  a  relative  would 
have  a  right  to  letters  even  in  a  foreign  state  if  he  were  entitled 
to  the  property  by  the  law  of  that  state. 

Notes: 

I.  An  administrator  should  be  careful  to  get  vouchers 
or  releases  from  those  to  whom  he  distributes  the 
property  under  the  law. 


m 


5IO  WILLS  AND  INHERITANCE 

2,     The  advantages  of  administration  by  a  trust  com- 
pany are  considerable. 

§  45a.    Settlement  Without  Administrator 

When  there  are  no  creditors,  the  heirs  or  next  of  kin  may, 
by  private  agreement,  settle  the  estate  without  taking  out  let- 
ters of  administration/ 

Each  one  who  would  be  entitled  to  a  share  under  the  laws 
of  the  state  should  give  a  release  of  his  share  somewhat  as 
follows : 

I,  the  undersigned,  being  entitled  to  a  certain  share  in  the 
estate  of  my  father,  James  Smith,  late  of  Ithaca.  New  York, 
do  hereby  in  consideration  of  (here  specify  money  or  prop- 
erty received  from  the  estate)  release  and  relinquish  all  my 
right  and  interest  in  and  to  the  said  share. 

Witness  my  hand  and  seal  this  ist  day  of  February.  1920. 

(Signed)      John  Smith      (l.  s.) 
Attest: 

Irvin  Reynolds. 

If  there  are  stocks  and  bonds  which  must  be  transferred 
on  the  books  of  the  respective  companies,  it  will  be  necessary, 
as  a  rule,  to  take  out  letters  and  to  furnish  the  companies  with 
certificates  of  their  having  been  issued.  If  money  belonging 
to  the  deceased  was  on  deposit  in  a  bank,  it  could  not  be  with- 
drawn except  by  a  duly  appointed  executor  or  administrator. 

In  difficult  situations,  executors  or  administrators  may  ask 
the  court  that  appointed  them  to  instruct  them  or  to  make 
an  order  in  the  particular  matter  that  would  relieve  them  from 
personal  responsibility. 

Where  there  are  several  executors  or  administrators,  the 
fact  that  one  or  more  becomes  incapable  does  not  prevent 
any  survivor  or  survivors  from  completing  the  settlement  of 
the  estate. 


Chauvit  V.  Ives.  173  N.  Y.  19a,  198.  *-«iy»ra  ▼.  uuii.  119  \.  Y.  6a.  72; 


THE  SETTLEMENT  OF  AN  ESTATE 


511 


Where  the  executors  or  administrators  do  not  complete 
the  settlement  of  the  estate,  the  court  will  appoint  an  ad- 
ministrator de  bonis  non,  that  is,  for  the  goods  not  admin- 
istered, to  complete  the  work. 


Review  Questions 
(The  answers  to  these  questions  should  conform  to  local  statutes.) 

1.  What  do  you  understand  by  probating  a  will?     Where  is  a 

will  proved?    Who  must  be  notified? 

2.  What  is  the  function  of  an  executor?    Whence  does  he  derive 

his  authority ?  Explain  fully.  What  are  letters  testamentary? 
What  are  letters  of  administration?  What  does  an  executor 
do  to  qualify? 

3.  What  is  an  administrator  pendente  litef 

4.  When  can  an  estate  be  settled  out  of  court? 

5.  When  there  is  no  will,  what  is  the  usual  procedure?    In  such  a 

case  who  will  be  appointed  administrator? 

6.  What  are  the  general  duties  of  an  administrator? 

7.  What  are  the  responsibilities  of  an  executor  or  an  administrator, 

if  he  continues  a  business  belonging  to  the  estate?  Has  an 
administrator  any  authority  outside  of  that  given  him  by 
the  court? 

8.  To  whom  is  a  petition  for  appointment  of  an  administrator 

addressed  ? 

9.  What  are  the  general  duties  of  an  administrator  pendente  lite? 

10.  What  is  done  when  property  belonging  to  the  estate  is  in  an- 

other state? 

11.  What  is  an  administrator  de  bonis  non? 


EXECUTORS  AND  ADMINISTRATORS 


513 


I 


CHAPTER  LXVIII 

DUTIES  OF  EXECUTORS  AND  ADMINISTRATORS 

§  453-    The  Procedure  of  Administration 

No  one  is  compelled  to  act  as  executor  or  administrator 
of  an  estate.  If  the  person  named  in  a  will  does  not  wish  to 
act  or  cannot  do  the  work  necessary  to  settle  the  estate,  he 
should  not  accept.  In  case  an  executor  declines,  the  court  of 
probate  will  appoint  some  other  person  or  a  trust  company 
to  act 

Any  person  named  as  executor  in  a  will  may  file  the  will 
for  probate  if  some  other  interested  party  has  not  done  so 
already.  An  executor  may  pay  the  funeral  expenses  before 
the  will  is  proved,  but  it  is  usually  unnecessary  to  do  this.  He 
may  also  do  anything  that  is  really  necessary  for  the  preserva- 
tion of  the  estate.  It  is  not  safe  to  do  more  than  this,  for 
until  the  will  has  been  proved  and  letters  testamentary  have 
been  issued,  the  executor  has  no  authority  for  further  action. 

If  there  is  more  than  one  executor  they  can  act  independ- 
ently except  in  the  sale  of  real  estate,  if  diey  should  be  author- 
ized to  sell  real  estate. 

§  454.    Inventory 

After  being  duly  appointed,  and  qualifying  and  receiving 
letters  testamentary,  or  if  there  is  no  will,  letters  of  admin- 
istration, an  inventory  should  be  made.  The  inventory  must 
contain  a  particular  statement  of  all  the  property  belonging 
to  the  deceased  that  the  administrator  or  executor  has  been 
able  to  discover,  with  such  details  as  indicate  its  value  for 
coUectibiUty.     It  is  not  confined  to  property  in  the  state  of 

5" 


administration.  It  should  not  include  real  estate,  unless  by 
the  will  it  has  been  made  part  of  the  general  estate.  The  assets 
of  the  partnership  should  not  be  named,  but  the  net  balance 
of  the  decedent's  interest,  including  the  good-will,  the  trade- 
marks, and  the  secret  formulae  should  be  entered.  Any  rents 
payable  at  the  time  of  the  decedent's  death  would  be  included, 
and  if  any  other  personal  property  should  come  to  the  knowl- 
edge of  the  administrctor  or  executor,  this  should  be  appraised 
and  filed  in  an  additional  inventory.  Sometimes  this  is  ex- 
cused in  the  will.  Unless  this  is  the  case,  it  is  necessary  to 
take  an  inventory  and  then  have  an  appraisement  made. 

Thereafter,  state  or  federal  transfer  or  inheritance  taxes 
should  be  paid  from  the  first  moneys  that  are  realized.  Taxes 
or  claims  due  to  the  government  are  preferred  and  have  prior- 
ity over  everything  else,  except  the  expenses  of  the  funeral  and 
last  illness. 

The  debts  to  the  estate  should  be  ascertained  and  steps 
should  be  taken  to  collect  them  promptly,  bringing  suit  if 
necessary.  It  is  the  duty  of  the  executor  to  collect  all  claims 
that  the  estate  has  against  other  parties,  and  to  take  over  all 
the  personal  assets  of  the  estate  and  to  turn  them  into  cash. 
He  is  authorized  to  do  this  at  his  discretion  to  the  best  possible 
advantage. 

§  455.    Advertising  for  Claims 

All  claims  against  the  estate  should  be  ascertained,  and 
this  is  usually  done  by  advertising  and  notifying  the  public 
generally  of  the  fact  of  administration  and  that  all  legal  claims 
should  be  filed  with  the  executor  or  the  administrator. 

It  devolves  on  the  executor  or  the  administrator  to  pay 
the  debts  of  the  estate,  but  it  is  necessary  first  to  make  sure 
that  the  estate  is  solvent  and  can  pay  all  obligations  and  that 
he  can  command  funds  enough  to  meet  these  claims.  Unless 
he  is  sure  of  this  he  should  not  pay,  for  if  he  did,  and  there 


514 


WILLS  AND  INHERITANCE 


I 


was  a  deficit,  he  would  be  personally  responsible.  For  this 
reason  the  law  allows  him  one  year  before  he  can  be  compelled 
to  pay  any  claims  or  legacies. 

§456.    Paying  Legacies 

Specific  legacies  of  personal  property  may  be  delivered  to 
those  entitled  to  them  when  it  is  ascertained  that  there  are 
funds  enough  to  pay  all  obligations.  Generally,  if  the  executor 
pays  any  legacies  before  the  expiration  of  the  year  he  does  so 
at  his  own  risk  and  would  have  to  make  good  if  the  estate 
proved  insolvent.  If,  however,  by  the  terms  of  the  will  the 
executor  is  directed  to  pay  any  legacy  before  the  end  of  the 
year,  he  may  require  the  legatee  to  give  bond  to  refund  in 
case  of  any  deficiency  of  assets  to  meet  debts. 

When  the  debts  are  paid  he  may  then  pay  the  general 
legacies.  The  same  nilc  holds  good  as  for  the  debts.  He 
must  not  pay  any  legacy  in  its  entirety  until  he  is  sure  he  has 
enough  to  settle  with  all.  If  the  estate  did  not  net  enough 
to  pay  all  general  legacies  it  would  be  the  duty  of  the  executor 
to  scale  them  down  equally.  Where  an  estate  is  solvent  and 
there  are  articles  that  have  personal  associations,  the  next 
of  kin  will  often  arrange  to  distribute  these  among  themselves, 
notifying  the  executor  to  deduct  a  proper  amount  from  the 
legacies  or  from  the  amounts  that  would  come  to  them  under 
the  distribution. 

§  457.    Caring  for  Funds 

All  funds  which  belong  to  the  estate  should  be  kept  in  a 
special  bank  account,  and  should  not  be  mingled  with  the 
executor's  own  funds  or  deposited  in  his  own  account.  If 
they  are  deposited  in  a  reputable  bank  in  the  name  of  the 
estate,  the  executor  will  not  be  responsible  if  any  are  lost. 
Checks  and  any  other  instruments  to  be  signed  by  the  executor 
.  should  be  first  signed  with  a  rubber  stamp  as  follows  : 


EXECUTORS  AND  ADMINISTRATORS  5x5 

The  Estate  of  Hiram  Randolf, 
By ^  Executor. 

Any  valuable  papers  or  records  coming  into  the  possession 
of  the  executor  should  be  placed  in  a  safe-deposit  box,  and 
if  there  is  more  than  one  executor  or  administrator  all  should 
have  access  to  the  instruments  pertaining  to  the  estate. 

§458.    An  Executor's  Authority 

Executors  have  no  authority  to  make  any  new  contracts. 
It  may  be  their  duty  to  fulfil  exirting  contracts  entered  into 
by  the  deceased,  but  not  to  make  new  contracts  or  to  engage 
in  any  new  business.  An  executor  would  be  authorized  to 
employ  an  accountant  if  necessary,  or  an  agent  if  necessary, 
and  he  is  allowed  to  employ  counsel.  The  executor  is  liable 
for  the  fees  of  counsel  but  usually  these  are  allowed  him  on 
settlement.  An  executor  may  incur  any  expenses  necessary 
to  preserve  or  care  for  the  estate. 

He  will  have  charge  of  all  the  personal  property  belonging 
to  the  estate  but  not  of  real  estate,  unless  acting  under  a  will 
that  directs  an  executor  to  sell  real  estate,  or  unless  ordered 
by  a  court  to  sell  real  estate  in  order  to  pay  debts.  If  the 
personal  estate  will  not  cover  all  claims  against  the  estate  in 
full,  an  order  to  sell  such  estate  would  be  made. 

He  may  sell  stocks  and  bonds,  etc.,  and  reinvest  the  pro- 
ceeds in  such  investments  as  the  state  allows  executors  and 
trustees  to  make.  Unless  the  stocks  and  bonds  held  by  the 
estate  are  of  this  class,  it  would  be  safest  for  the  executor 
to  do  this.  He  has  no  right  to  pledge  any  property  in  his  care 
but  has  authority  to  sell  it  at  his  discretion. 

An  executor  would  have  an  authority  to  carry  on  a  sole 
business  conducted  by  the  deceased.  An  executor  would  have 
no  rights  in  a  partnership  business  unless  authorized  by  will. 
If  be  elected  to  continue  a  partnership  business,  although  not 


il 


Si6 


WILLS  AND  INHERITANCE 


SO  authorized  by  the  will,  he  would  be  primarily  liable  for 
any  losses  that  m.ght  occur.  If  he  were  specifically  authorized 
to  do  th.s  ,n  the  *ill.  and  he  lost  money,  he  would  have  a 
claim  agamst  the  estate  for  indemnity. 

An  executor  can  compel  the  survivor  of  a  partnership  or 
&e  sumvorsto  pay  out  the  interest  of  the  testator  in  a  reason- 
able  time.  The  value  of  the  good-will  and  of  the  trade-name 
would  have  to  be  accounted  for  as  part  of  the  partnership 


Review  Questions 


I. 

2. 


3- 

4- 


What  are  the  general  duties  of  an  executor  or  an  administrator? 

Jy  ,»aSgT""  '°  •"'""  appointment?    What  is  meant 
Wtot  evidence  of  his  authority  must  an  executor  have' 
Under  what  conditions  may  a  safe-deposit  box  company  give 

access  to  a  box  to  an  executor  or  an  administrator? 

5.  After  appointment,  what  are   the  next  three   steps?     In  an 

executors  inventory  should  real  estate  be  included?    Prooertv 

Tn^n"  "T"l  ?^r''  "*"•'"''''  '"'"«'  '"  'he  business 
and  property  of  a  firm?  Give  rules  as  to  inventories  and  state 
what  they  must  contain. 

6.  What  claims  are  preferred  and  in  what  order? 

8.    Give  the  order  of  payment  in  the  distribution  of  the  estate  of 
a  decedent  in  your  state. 

lo     H,?!l!  "'*'"  *'■"'  ""''  ""  '""""'  P^'y  '««"«■■«  '"  yo«r  state? 
lo.    Has  the  executor  any  control  of  the  real  esute? 

(«)    Real  estate  of  a  partnership  of  which  deceased  was  a 
,  member  ? 

(b)  A  lease  for  twenty-one  years? 

(c)  A  right  of  way? 

(d)  Fixtures  attached  to  decedent's  real  estate  and  used  for 
trade  purposes? 

What  is  an  executor's  duty  in  regard  to  stocks  and  bonds? 


II. 


12. 


EXECUTORS  AND  ADMINISTRATORS 


517 


14. 


15 


13.    What  is  the  duty  of  executor  of  partner  as  to  continuance  of 
business  of  partnership? 

Has  an  executor  a  right,  ex  officio,  to  examine  the  books  of  a 
partnership  ? 

Within  what  period  can  the  executor  compel  surviving  partners 
to  pay  the  interest  of  testator? 
16.     What  is  the  duty  of  an  executor  in  regard  to  insuring  property 
in  his  custody?     Has  the  executor  of  a  solvent  estate  an 
insurable  interest  in  the  real  estate  of  decedent? 

Is  a  judgment  against  an  executor  a  lien  on  real  property  of 
the  estate? 

If  an  executor  has  been  ordered  to  pay  a  legacy  but  fears  he 
will  not  have  enough  to  pay  debts,  how  may  he  protect  him- 
self? 

To  what  class,  realty  or  personalty,  does  rent  of  real  estate 
belong,  if  it  become  due  before  decease  but  is  collected 
after? 

Decedent's  mortgaged  property  is  foreclosed  after  decease.  Sur- 
plus, turned  over  to  estate,  belongs  to  what  class  of  property? 

If  a  decedent  had  contracted  to  sell  real  estate,  and  the  purchase 
money  remains  unpaid  at  his  death,  to  what  class  of  property 
does  this  unpaid  purchase  money  belong? 


17 


18. 


19 


20. 


21. 


I 


CHAPTER  LXIX 

QUESTIONS  BETWEEN  LIFE  TENANT 
AND  REMAINDERMAN 

§459-    How  Conflicting  Rights  Arise 

Some  difficult  questions  in  the  settlement  of  an  estate 
come  up  in  the  conflict  of  interest  between  the  life  tenant  and 
the  remainderman.  If  by  the  terms  of  a  will  $40,000  in 
stocks  and  bonds  and  a  well-located  store  building  are  directed 
to  be  held  in  trust  to  pay  the  income  in  quarterly  instalments 
to  the  testator's  daughter,  Ethel  Cole,  and  at  her  death  to 
be  sold  and  distributed  to  aU  his  children  or  their  issue  per 
stirpes,  in  such  case  Ethel  Cole,  the  daughter  named,  would 
have  the  benefit  of  a  life  estate  in  both  the  real  and  the  per- 
sonal property  with  the  remainder  to  the  heirs  of  the  testator. 

The  following  questions  might  arise: 

I.  Profits  on  Reinvestments,  It  may  be  the  duty  of  the 
executor  to  sell  the  stocks  and  bonds  and  reinvest  the  proceeds. 
In  doing  this  there  might  be  a  profit.  If  so,  that  profit  is 
held  to  belong  properly  to  the  corpus  of  the  estate  and  no  part 
would  go  to  the  holder  of  the  life  interest.  She  would,  how- 
ever,  benefit  by  the  increased  value  of  the  new  investments  on 
which  she  would  have  the  income  for  the  term  of  her  life. 

2.  Stock  Dividends  or  Unusual  Cash  Dividends,  Again, 
on  some  of  the  stock  there  might  be  a  stock  dividend  or  an 
exceptional  cash  dividend.  In  such  a  case,  the  general  rule 
in  this  country  is  that  if  part  of  the  value  so  apportioned 
accumulated  before  the  life  interest  began,  such  part  would 
be  held  to  be  principal  and  not  income  and  would  be  reserved 
for  those  entitled  to  the  remainder.    The  life  tenant  mean- 

518 


LIFE  TENANT  AND  REMAINDERMAN 


519 


while  would  be  entitled  to  any  interest  arising  from  this 
amount.  That  is,  the  court  will  inquire  as  to  the  time  when 
the  fund  was  earned  or  accumulated,  and  it  will  be  divided 
according  to  whether  it  accumulated  in  the  lifetime  of  the 
testator  in  which  event  it  goes  to  the  remainderman,  or  after 
his  death  in  which  event  it  goes  to  the  life  tenant. 

In  Massachusetts,  Georgia,  and  Rhode  Island,  a  different 
rule  prevails,  and  all  cash  dividends  whether  large  or  small 
are  regarded  as  income  and  belong  to  the  tenant  for  life. 
Stock  dividends,  on  the  contrary,  are  regarded  as  principal  and 
are  held  for  those  entitled  to  the  remainder.  The  life  tenant 
would,  of  course,  have  the  income  until  the  life  estate  ter- 
minated. This  last  rule  is  simple  but  at  times  unfair,  and 
the  courts  do  not  always  adhere  to  it  rigidly. 

3.  Subscription  Rights,  Another  case  is  where  a  cor- 
poration issues  new  stock  or  bonds  and  gives  to  the  present 
stockholders  the  right  to  subscribe  at  par  or  at  less  price 
than  outsiders.  In  some  corporations  these  rights  are 
very  valuable.  It  has  been  held  that  the  value  of  the  right 
would  belong  to  the  corpus  of  the  estate.  It  would  be  the  duty 
of  the  trustees  to  sell  the  right  on  the  best  terms  possible 
and  then  invest  the  amount  so  received,  giving  the  life  tenant 
any  income  from  such  investment,  but  holding  the  principal 
for  the  remainderman. 

4.  Expenditures  on  Real  Estate,  In  regard  to  the  real 
property,  the  taxes,  water  rates,  interest  on  any  mortgage  or 
encumbrance,  and  necessary  repairs  would  all  be  at  the  charge 
of  the  life  tenant  and  would  have  to  be  paid  and  deducted 
from  any  rents  arising  from  the  property.  In  case  it  should 
become  necessary  to  pay  off  a  mortgage  or  to  pay  a  consider- 
able assessment  for  street  improvements,  the  case  is  more 
complicated.  The  usual  rule  is  to  take  the  tables  of  mortafity 
and  to  ascertain  the  expectation  of  the  life  of  the  life  tenant. 
Then  a  calculation  is  made  as  to  the  advantages  which  will 


S20 


WILLS  AND  INHERITANCE 


arise  from  her  being  relieved  of  the  payment  of  interest  on 
the  amount  involved  for  the  balance  of  the  life  estate.  If, 
for  example,  the  incumbrance  or  assessment  which  is  to  be 
paid  off  amounts  to  $10,000,  and  the  current  rate  of  interest 
IS  5  per  cent,  the  share  chargeable  to  the  life  tenant  is  the 
present  worth  of  an  annuity  of  $500  (the  interest  for  a  year 
on  the  mortgage),  for  the  number  of  years  during  which 
the  mortality  tables  show  she  is  likely  to  enjoy  the  increased 
income. 


Review  Questions 


I. 
2. 


3. 


What  is  a  life  tenant?    What  is  a  remainderman? 
When  a  fund  is  to  be  invested  and  interest,  dividends  and  income 
are  to  be  applied  to  the  use  of  a  beneficiary  for  life    does 

a  profit  from  the  sale  of  stock  belong  to  the  life  ten^t  or 

to  the  corpus  of  estate? 
Does  a  dividend  on  stock,  declared  before  a  testator's  death 

become  a  part  of  his  estate  or  does  it  belong  to  the  life  tenant 

as  income? 

4-    How  would  a  stock  dividend  be  apportioned  between  the  life 

tenant  and  the  remainderman  in  your  state? 
S    Do  proceeds  of  sale  of  rights  to  subscribe  to  new  stock  go  to 

life  tenant  or  to  body  of  estate? 
6.    Is  a  local  assessment   for  improvement  apportionable  between 

life  tenant  and  remainderman? 


CHAPTER  LXX 

INTERMEDIATE  AND  FINAL  ACCOUNTS 

§460.    The  Obligation  Account 

The  obligation  to  account  rests  on  all  administrators, 
executors,  trustees,  and  guardians.  The  account  required  may 
be  defined  as  an  orderly  statement,  duly  verified  and  supported 
by  vouchers,  of  the  trustee's  dealings  with  the  funds  and 
property  of  the  decedent.  It  must  show  all  receipts  and 
expenditures  grouped  according  to  their  character,  and  must 
show  correctly  the  balance  remaining  for  distribution  or  to 
be  held.  It  must  show  any  increase  in  value  or  any  deprecia- 
tion. An  accounting  is  a  judicial  scrutiny  of  such  an  account 
in  open  court,  subject  to  the  adverse  criticism  or  claims  contra 
of  any  legatee  or  devisee  whose  rights  may  be  affected. 

§461.    Kinds  of  Accounts  to  be  Filed 

An  executor's  account  may  be  intermediate  or  final. 

An  intermediate  account  is  one  filed  during  the  administra- 
tion as  a  report  of  progress.  It  discloses  the  condition  of  the 
estate  at  the  time  of  the  report. 

A  final  accounting  is  one  that  is  capable  of  being  judicially 
settled.  Such  an  accounting  may  be  settled  for  certain  pur- 
poses only,  or  for  all  purposes. 

An  executor's  account  may  also  be  voluntary  or  compul- 
sory. A  voluntary  account  is  one  rendered  by  the  executor 
or  administrator  on  his  own  initiative.  An  executor  or  an 
administrator  at  any  time  may  file  such  an  account,  verified 
with  proper  vouchers.  A  compulsory  account  is  one  at  the 
instance  of  some  person  entitled  to  require  it  or  under  the 

521 


$22 


WILLS  AND  INHERITANCE 


direction  of  the  probate  judge.    When  an  account  has  been 
judicially  settled,  it  is  conclusive  upon  all  parties  concerned. 

§462.    Final  Accounting 

In  New  York  an  executor  or  an  administrator  may  volun- 
tarily  file  a  final  accounting  one  year  after  letters  testamentary 
have  been  issued  to  him,  and  after  aU  creditors  and  persons 
having  claims  against  the  estate  have  been  notified  by  publica- 
tion  according  to  law  to  present  them.  In  such  case  he  will 
ask  that  all  persons  with  unsettled  claims  be  cited,  and  that 
the  husband  or  the  wife  of  the  deceased  and  the  next  of  kin 
must  be  cited.  Any  person  interested  may  contest  an  account- 
ing so  far  as  it  affects  his  interest. 

The  probate  court  may  compel  a  final  accounting  after  one 
year  or  when  letters  testamentary  have  been  revoked,  or  where 
pursuant  to  a  decree  real  estate  has  been  sold,  or  where  the 
will  has  provided  that  the  executor  take  some  action  concern- 
ing real  estate.  A  creditor,  a  legatee,  a  surety  on  the  bond 
of  the  administrator,  or  a  coexecutor  may  ask  for  the  final 
accounting.    All  persons  interested  must  be  cited  to  attend. 

§  463.    Preparing  Accounts 

In  preparing  an  account,  it  is  easiest  to  follow  some  prec- 
edent which  has  been  handed  down  by  some  court  or  some 
set  and  certain  method  by  which  it  is  to  be  filed.  In  some 
cases  complete  forms  are  provided  by  the  probate  courts.* 


INTERMEDIATE  AND  FINAL  ACCOUNTS 


523 


3.  What  is  an  intermediate  account?    What  is  a  voluntary  account? 

4.  When  may  an  executor  or  an  administrator  voluntarily  file  an 

intermediate  account? 

5.  When  may  an  executor  voluntarily  present  his  final  account  and 

ask  that  the  same  be  judicially  settled? 

6.  When  is  an  account  judicially  settled? 

7.  Should  the  proceeds  arising  from  a  mortgage,  lease,  or  sale  of 

real  property  under  a  surrogate's  order  for  payment  of  debts 
and  funeral  expenses  be  included  by  an  executor  in  his  account 
of  proceedings? 


Review  Questions  * 

1.  Why  must  all  who  occupy  positions  of  trust  render  an  account? 

What  must  an  executor's  account  contain  ? 

2.  Who  may  caU  for  an  account  of  an  administrator  of  an  estate? 


RIGHTS  WHERE  THERE  IS  NO  WILL 


52s 


^11 


CHAPTER  LXXI 

RIGHTS  IN  PROPERTY  WHEN  THERE  IS  NO  WILL 

§  464.    In  the  Case  of  Real  Property 

If  a  person  dies  without  disposing  of  his  real  property  by 
will,  those  persons  mentioned  in  §  431  become  entitled  to  it. 
Real  property,  unlike  personal  property,  becomes  the  property 
of  the  heirs  on  the  owner's  death  without  any  further  action. 
Realty  is  liable  for  debts  only  in  case  there  is  not  enough 
personal  property  to  pay  them.  As  a  rule  some  action  must  be 
brought  by  the  creditor  against  the  heir  before  real  property 
may  be  sold. 

One  obligation  that  must  be  met  before  the  heir  can  take 
possession  is  the  payment  of  any  transfer  or  inheritance  taxes 
on  the  property.  This  tax  must  be  paid  or  the  property  will 
be  sold  and  the  tax  collected  out  of  the  proceeds.  If  not  thus 
sold,  the  title  is  not  marketable  until  transfer  taxes  are  paid,  or 
record  made  that  it  is  exempt. 

§  465.    In  the  Case  of  Personal  Property 

If  a  person  dies  intestate  leaving  personal  property,  an  ad- 
ministrator must  be  appointed.  Those  persons  named  in  §  432 
as  being  entitled  to  the  personal  property  are  respectively  en- 
titled to  the  administration  of  the  estate.  If  no  one  else  who 
has  a  better  right  makes  a  move  to  take  out  letters  of  ad- 
ministration, one  of  the  relatives  who  has  a  right  to  a  share 
in  the  personal  property  may  notify  the  others  and  apply  for 
letters  himself. 

Any  inheritance  taxes  are  deducted  from  the  share  of  each 
person.  .  Near  relatives  are  entitled  to  a  certain  amount  which 

524 


is  exempt  from  tax.  The  state  and  the  federal  law  must  be 
consulted  to  ascertain  the  inheritance  taxes  and  any  ex- 
emptions. 

§  466.    Rights  of  a  Husband  or  a  Wife 

After  her  husband's  death  a  wife  is  entitled  under  the 
common  law  for  the  remainder  of  her  life  to  the  use  of  one- 
third  of  all  the  real  property  which  her  husband  owned  during 
their  marriage.  This  is  her  right  of  dower,  which  cannot  be 
taken  from  her  by  any  means  except  by  her  own  signature  to 
a  deed,  or  a  release,  or  an  agreement  made  at  or  before  mar- 
riage. If  the  property  has  been  left  to  someone  else  by  will, 
it  is  subject  to  this  right,  and  the  person  receiving  it  must 
either  give  the  widow  the  use  of  one-third  of  the  property  or 
settle  with  her  in  money  for  it.  The  same  is  true  where  there 
is  no  will.  The  heirs  must  settle  with  the  widow  for  her 
dower  right. 

The  widow  may  appear  in  court  at  the  time  of  the  settle- 
ment of  the  estate  and  claim  her  dower  right.  Or,  if  it  is 
denied  her,  she  may  bring  an  action  to  enforce  the  right. 
Where  the  property  is  distributed  by  law,  the  law  usually 
provides  a  certain  length  of  time  within  which  those  who  take 
the  real  property  must  settle  with  the  widow  for  her  dower 
rights. 

If  a  child  has  been  bom  alive,  a  husband  has  a  right  to  a 
life  estate  in  all  of  his  wife's  real  property.  In  many  states 
today,  however,  she  can^cut  off  this  right  of  curtesy  by  selling 
the  property  during  her  lifetime,  or  by  leaving  it  to  someone 
by  will. 

Where  a  husband  has  the  right  of  curtesy,  another  person 
entitled  to  the  wife's  property  gets  it  only  after  the  husband's 
death.  The  husband  has  the  same  right  to  enforce  his  right 
of  curtesy  that  a  woman  would  have  in  case  of  dower. 

Where  a  person  dies  without  leaving  a  will  the  husband 


526 


WILLS  AND  INHERITANCE 


it 


(I 


I, 


or  the  wife  has  those  rights  in  personal  property  granted  by 
the  state  law  (see  §  432),  and  may  enforce  them  in  the  same 
way  as  has  been  described  in  §  469. 

Either  husband  or  wife  may  lose  all  rights  in  the  estate  by 
delaying  to  enforce  them.  Claim  should  be  made  promptly  of 
the  executor  or  the  administrator  with  the  will  annexed,  or 
of  the  heirs,  if  the  person  died  without  leaving  a  will. 

§  467.    What  Creditors  Must  Do 

AU  creditors  should  present  their  claims  against  an  estate 
promptly.  If  there  is  no  move  to  administer  the  estate,  any 
creditor  has  a  right  to  serve  notice  on  the  relatives  and  the 
other  persons  interested  and  to  apply  for  letters  of  administra- 
tion. If  no  one  else  appears  and  qualifies,  the  administration 
of  the  estate  is  granted  to  him.  He  is  obliged  to  give  the 
usual  bond  with  the  number  of  sureties  required  by  law,  and 
in  double  the  amount  of  the  property  belonging  to  the  estate, 
to  administer  it  faithfully. 

If  a  creditor  fails  to  read  the  notice  and  to  present  his 
claim  within  the  time  limited  by  law,  he  may  lose  the  claim 
altogether.  If  the  debtor  has  died  without  the  creditor's 
knowledge,  the  latter's  failure  to  present  his  claim  on  time 
may  lose  him  his  rights.  If  the  claim  is  not  presented  within  the 
time  limited  by  law,  the  executor  or  the  administrator  after 
due  notice  may  pay  legacies  or  distribute  the  estate  in  his 
hands,  and  creditors  lose  all  claim  against  the  executor  or 
administrator.  They  may,  however,  in  such  case  attempt  to 
collect  from  some  of  the  legatees  who  have  already  been 
paid. 


Note: 


1. 


When  a  customer  dies  in  debt  to  a  business  house, 
the  collection  department  must  inform  itself  and 
act  promptly. 


JRIGHTS  WHERE  THERE  IS  NO  WILL 

Review  Questions 


527 


I. 


2. 


When  may  real  property  belonging  to  an  estate  be  sold  to  pay 

debts? 
Who  may  take  out  letters  of  administration  when  a  man  dies 

intestate  ? 

3.  What  rights  in  your  state  has  a  husband  or  a  wife  in  the  real 

estate  of  the  other? 

4.  When  and  how  should  the  rights  of  dower  and  curtesy  be  en- 

forced ? 

5.  In  what  order  are  the  debts  of  the  deceased  usually  paid? 

6.  What  are  the  rights  of  creditors  generally  against  the  estate? 

7.  What  are  the  rights  of  a  creditor  holding  insufficient  collateral 

against  an  insolvent  estate? 

8.  If  a  creditor's  claim  against  decedent  is  not  presented  within 

one  year,  what  would  be  the  effect? 


CHAPTER  LXXII 

RIGHTS  IN  PROPERTY  LEFT  BY  WILL 

§  468.    If  Real  Property  Has  Been  Devised  by  WUl 

If  real  property  has  been  left  by  a  will  which  did  not  pro- 
vide  that  the  inheritance  tax  was  to  be  paid  out  of  the  funds 
of  the  estate,  the  party  to  whom  the  realty  was  left  will  be 
obliged  to  pay  the  inheritance  tax,  if  there  is  one,  before  he  is 
entitled  to  receive  the  property.  A  near  relative,  a  husband, 
wife,  father,  mother,  child,  brother,  or  sister,  would  probably 
be  entitled  to  some  exemption.  That  is,  a  near  relative  is 
entitled  to  receive  property  worth  a  certain  amount  without 
paying  any  tax.  After  the  specified  amount  has  been  reached, 
the  tax  is  levied  at  a  certain  percentage,  which  is  generally 
less  than  it  would  be  for  persons  not  related  at  all  to  the 
deceased. 

In  order  to  determine  what,  if  any,  rights  to  an  exemption 
exist  and  whether  there  is  a  tax  due  at  all,  it  is  necessary  to 
examine  the  inheritance  laws  of  the  state  where  the  real  prop- 
erty is  located. 

§  469.    M  Personal  Property  Has  Been  Left  by  Will 

The  statement  made  in  the  last  section  may  also  apply  to 
personal  property.  To  find  out  whether  there  is  an  inheritance 
tax,  and  if  so  what  exemptions  may  be  claimed,  one  must  con- 
sult the  law  of  the  place  where  the  maker  of  the  will  had  his 
residence  at  the  time  of  his  death.  There  may,  however,  be 
further  taxes  on  the  transfer  of  stocks  and  bonds  under  the 
laws  of  the  states  where  the  companies  are  located.  In  the 
case  of  these  latter  taxes  no  exemption  is  allowed. 

A  person  who  would  have  a  right  to  a  share  in  the  personal 

528 


RIGHTS  IN   PROPERTY  LEFT  BY  WILL 


529 


property  if  there  were  no  will  is  entitled  to  be  present  at,  and 
to  be  notified  of,  any  contest  of  the  will.  He  may  be  rep- 
resented by  his  lawyer  or  he  may  contest  the  will  himself  if  he 
thinks  there  is  good  cause. 

A  person  is  entitled  to  a  transfer  from  the  executor  or  the 
administrator  of  any  stock  certificates  or  bonds  left  him  by  the 
will,  and  may  then  have  new  certificates  issued  to  him  on  the 
books  of  the  respective  corporations. 

§  470.    Contesting  a  Will 

If  any  contest  is  made  about  the  probate  of  a  will,  all  the 
evidence  to  prove  the  validity  of  the  will  must  be  brought  in. 
Everyone  interested  must  have  notice  of  the  commencement 
of  any  action  to  contest  the  will,  and  all  such  persons  are 
entitled  to  be  present  at  the  trial  and  to  be  represented  by 
counsel. 

If  property  is  left  to  a  person  by  one  will,  and  another 
of  later  date  is  offered  for  probate  by  which  the  bequest  is 
either  diminished  or  left  out  altogether,  it  is  not  wise  to 
contest  the  last  will  unless  there  is  clear  evidence  to  prove 
that  the  testator  was  so  mentally  weak  as  to  be  unable  to 
realize  the  nature  of  his  acts  and  the  value  of  his  property 
at  the  time  he  made  the  will,  or  that  he  had  an  insane  and 
unfounded  prejudice  against  the  person  whose  legacy  was 
reduced  or  cut  off. 

If  a  will  is  contested,  the  person  who  would  inherit  the  real 
property  if  no  will  existed  is  entitled  to  notice  of  the  action 
to  contest  it  and  is  entitled  to  be  present  in  court  and  to  be 
represented  by  a  lawyer.  He  may  bring  in  witnesses  to  dis- 
prove the  will  or  the  testator's  mental  capacity.  (See  §  434 
on  capacity  to  make  a  will.) 

Undue  Influence,  Undue  influence,  on  which  ground  so 
many  contests  are  made,  must  have  been  an  influence  so  great 
over  a  person  mentally  weak  that  he  was  entirely  incapable  of 


S30 


WILLS  AND  INHERITANCE 


exercising  his  own  judgment.  Contesting  a  will  is  an  expen- 
sive process  and  a  person  should  have  very  clear  grounds  be- 
fore attempting  it 

A  man's  will,  as  expressed  by  the  name,  is  his  wiU  as  to 
the  disposition  of  his  property,  and  rarely  pleases  anyone 
except  those  who  are  immediately  benefited.  Owing  to  the 
publicity  given  to  famous  cases  where  wills  are  contested,  there 
is  an  erroneous  popular  impression  that  any  clever  lawyer  can 
break  a  will.  It  is  very  difficult  to  break  a  will ;  of  all  the  wills 
probated  each  year  but  a  smaU  percentage  are  contested  and 
few  are  ever  set  aside. 

It  is  a  current  belief  which  derives  color  from  the  sensa- 
tional contests  of  which  we  read  in  the  newspapers,  that  a 
great  many  wills  are  broken.     But,  though  the  attkcks  of 
disappointed  or  greedy  relatives  are  numerous,  the  contrary 
is  true  according  to  the  records  of  the  largest  county  of  the 
state  with  which  I  am  most  familiar  (Massachusetts),  and 
where  predatory  tendencies  against  testators  are  well  de- 
veloped.    These  records  show  a  steady  average  of  rather 
less  than  one  per  cent  of  wills  disallowed  during  the  last 
ten  years,  a  result  which  is  made  more  remarkable  by  the 
reminder  that  some  of  these  were  set  aside  because  of  de- 
fective attestation  instead  of  the  mental  incapacity  and  undue 
influence  of  the  maker  ordinarily  urged  by  the  rapacious. 
The  statistics  for  the  same  period  show  a  yearly  average  of 
less  than  one  per  cent  of  wills  compromised— that  is,  where 
the  legatees  and  next  of  kin  agreed  to  split  their  differences 
with  the  sanction  of  the  court.    These  figures,  which  are  un- 
doubtedly indicative  of  conditions  elsewhere,  reveal  a  dis- 
position on  the  part  of  juries  to  uphold  the  validity  of  legal 
testaments  and  tend  to  contradict  the  notion  of  the  man  in 
the  street  that  his  last  wishes  are  apt  to  be  disregarded.* 
Note: 

I.    To  contest  a  will  is  rarely  wise.     (See  §  31  on 
litigation.) 


» "Uw  and  The  Family."  Robert  Grant,  Judge  of  tlie  Probate  Court.  Botton. 


RIGHTS  IN  PROPERTY  LEFT  BY  WILL 


Review  Questions 


531 


I.  When  real  property  has  been  devised,  who  has  to  pay  the  in- 
heritance tax?    Explain  the  working  of  an  inheritance  tax. 

J.  What  are  the  general  provisions  of  the  law  of  your  state  as  to 
inheritance  taxes? 

3.  Whose  duty  is  it  to  transfer  corporate  stock  left  by  a  will? 

4.  Who  are  entitled  to  notice  of  the  contesting  of  a  will? 

5.  What  mental  unsoundness  invalidates  a  will? 

6.  What  is  meant  by  undue  influence? 

7.  Is  it  usually  wise  to  contest  a  will?     Give  reasons  for  your 

answer. 


PART  XII 
PERSONAL  RELATIONS 


■si:,- ";-.-.-!:;  Mil iiiliiiiijJttiit, 


CHAPTER  LXXIII 


HUSBAND  AND  WIFE 


§471.    Persons  Who  May  Marry 

Before  marrying,  one  should  always  consult  the  law  of 
the  state  where  the  ceremony  is  to  be  performed.  Almost  all 
states  require  a  marriage  license. 

Age  Requirements.  All  states  require  the  consent  of 
parents  or  guardians  if  the  parties  are  under  a  certain  age. 
This  age  varies  in  different  states,  the  average  age  ranging 
from  twelve  to  eighteen  years  for  a  woman,  and  from  four- 
teen to  twenty-one  years  for  a  man. 

Forbidden  Marriages.  Some  states  forbid  the  marriage  of 
first  cousins.  Many  states  forbid  intermarriage  between  races, 
and  in  some  of  the  southern  states  marriage  between  a  white 
person  and  a  negro  is  a  crime.  Persons  married  to  those  of 
other  races  or  to  very  near  relatives  should  consult  the  laws  of 
a  state  before  taking  up  residence  in  it,  as,  even  if  such  mar- 
riages are  valid  in  the  states  where  they  were  performed,  in 
other  states  which  forbid  such  marriages  it  might  be  a  crime 
for  the  parties  to  live  together. 

Annulment  of  Marriage.  If  a  person  who  is  under  the 
age  of  consent,  as  fixed  by  the  law  of  the  state  where  the 
marriage  takes  place,  marries  without  his  or  her  parents'  or 
guardians'  consent,  the  parents  or  the  guardians  can  usually 
have  the  marriage  annulled ;  but  not  if,  after  coming  of  age, 
the  person  has  of  his  or  her  own  free  will  lived  with  the  other 
party  to  the  marriage. 

Invalid  Marriages.  Anyone  who  has  a  husband  or  a  wife 
living  and  is  not  divorced  cannot,  of  course,  marry  again.    If 

535 


536 


PERSONAL  RELATIONS 


he  or  she  attempts  to  do  so,  the  marriage  is  of  no  eflFect;  but 
as  a  rule  the  other  party  to  the  first  marriage  may  apply  to 
the  court  to  have  the  second  marriage  declared  of  no  effect 
and  to  establish  the  fact  that  the  children  of  the  first  marriage 
are  the  legitimate  children  of  the  innocent  party.  This  is  a 
wisecourse.  as  it  insures  the  property  rights  of  the  children. 
The  mjured  person  may  also  cause  the  other  party  to  be 
prosecuted  criminally  and  sent  to  prison  for  bigamy.  In  this 
case  the  prosecution  must  be  brought  in  the  state  where  the 
bigamous  marriage  took  place. 

If  a  person  marries  again  with  the  honest  belief  that  a 
long  missing  husband  or  wife  is  dead,  there  would  be  no 
grounds  for  prosecution,  but  the  other  party  to  the  second 
marriage  may  apply  to  have  the  marriage  set  aside  and  any 
children  declared  to  be  his  or  her's  only.    The  person  who 
marries  beheving  in  the  death  of  a  husband  or  wife  may  apply 
to  have  the  second  marriage  set  aside;  also  the  missing  hus- 
band or  vvife  may.  unlike  Enoch  Arden.  apply  for  annulment, 
in  such  a  case  the  children  would  go  to  the  party  who  had 
had  no  previous  marital  entanglement.    If  no  action  is  brought 
such  a  marriage  remains  valid  and  binding,  but  the  supposedly 
dead  husband  or  wife  would  probably  have  to  apply  to  the 
court  m  order  to  obtain  die  right  to  marry  again. 

The  length  of  time  for  which  the  absent  person  must 
have  been  missing  in  order  to  permit  the  husband  or  the  wife 
to  marry  again  without  committing  bigamy  differs  in  the 
various  states.  In  such  a  case  the  statute  law  of  the  state 
where  the  new  marriage  is  to  be  performed  should  always  be 
ronsulted.  The  length  of  time  prescribed  by  law  varies  from 
live  to  seven  years. 

Marriage  Against  One's  Will.  A  person  cannot  be  mar- 
ned  against  his  will;  if  forced  into  a  marriage  or  induced  to 
marry  through  fraud,  or  if  he  marries  while  too  intoxicated 
to  understand  the  nature  of  his  act,  he  may  apply  to  the  court 


;i 


1^1 


HUSBAND  AND  WIFE 


537 


to  have  the  marriage  declared  void.  The  relatives  or  friends 
of  an  idiot  or  an  insane  person  who  attempts  to  contract  mar- 
riage may  have  the  attempted  marriage  declared  of  no  effect. 
If  a  person  marries  while  sane  and  afterwards  becomes  insane, 
that  is  a  different  matter ;  the  marriage  holds  good. 

If  a  person  discovers  after  marriage  that  the  other  party 
is  physically  incompetent  to  enter  into  the  marriage  relation 
and  that  this  physical  condition  is  incurable,  he  or  she  is  en- 
titled to  have  the  marriage  set  aside.  Except  where  there 
has  been  specific  legislation  on  the  subject,  contagious  diseases, 
such  as  tuberculosis,  venereal  diseases,  etc.,  do  not  prevent  a 
person  from  entering  into  a  binding  marriage. 

In  any  case  a  party  who  is  entitled  to  have  the  marriage 
annulled  must  act  promptly.  If  there  is  any  unnecessary  de- 
lay, or  if  the  party  willingly  Hves  with  the  other  party  after 
discovering  the  circumstances  which  would  entitle  him  or  her 
to  be  released  from  the  relation,  the  courts  will  refuse  to 
interfere.  Even  when  persons  are  entitled  to  be  freed,  it  is 
against  public  policy  to  break  up  marriage  where  there  is  any 
disposition  of  the  parties  to  continue  living  together. 

Note: 

I.  Wherever  there  is  a  marriage  license  bureau,  all  the 
information  necessary  as  to  the  law  may  be  ob- 
tained at  that  bureau.  If  there  is  none,  one  should 
consult  the  domestic  or  personal  relations  law  of 
the  state  or  a  reputable  lawyer. 


§  472.    What  Constitutes  a  Marriage 

The  usual  marriage  ceremony  in  this  country  is  a  religious 
one,  and  inasmuch  as  clergymen  can  lawfully  perform  mar- 
riages, this  is  all  that  is  necessary.  A  clergyman  is  not  author- 
ized to  perform  marriages  until  he  has  been  duly  licensed  to 
preach.    There  must  be  some  witnesses  present,  usually  two. 


538 


PERSONAL   RELATIONS 


But  in  other  countries  a  civil  ceremony  is  necessary,  since 
the  religious  ceremony  is  not  binding.  Certain  officers  in  this 
country,  such  as  mayors,  city  clerks,  and  justices  of  the  peace 
are  authorized  by  law  to  perform  marriages. 

Persons  may  also  marry  in  some  states  by  simply  signing 
a  written  contract  in  the  presence  of  other  persons  who  sign 
with  them  as  witnesses.  All  who  sign  must  acknowledge  their 
signatures  before  a  judge  or  some  other  authorized  person 
and  the  contract  must  be  recorded  in  the  office  of  registry 

Formerly  it  constituted  a  valid  marriage  in  most  parts  of 
this  country  if  two  people  who  were  living  togedier  simply 
introduced  or  spoke  of  each  other  to  third  parties  as  husband 
or  wife.  But  this  so-called  "common  law  marriage"  has  been 
abohshed  by  law  in  many  states,  and  it  is  never  a  safe  form 
of  mamage.  Where  a  common  law  marriage  is  entered  into 
and  is  valid,  divorce  can  be  obtained  only  in  the  usual  way 
Marriages  according  to  the  customs  of  the  Society  of  Friends 
and  the  Ethical  Culture  Society  are  recognized  as  valid  in 
most  states. 


Notes: 

1.  In  most  states  a  marriage  license  is  necessary  and  no 

clergyman  or  official  will  marry  a  couple  until  they 
produce  the  formal  license. 

2.  A  marriage  certificate  signed  by  the  clergyman  and 

by  the  witnesses  should  be  given  the  bride  to  keep 
as  proof  of  the  marriage. 

3.  Any  person  intending  to  marry  should  make  sure 

that  the  party  performing  the  ceremony  is  duly 
authorized. 

4.  The  design  of  the  solemnization  of  marriage  is  that 

due  publicity  should  be  attained.  A  secret  mar- 
riage is  an  attempt  to  evade  this  salutary  rule 
and  is  rarely  justifiable. 


HUSBAND  AND  WIFE 


539 


§  473.    Personal  Rights  of  Husband  and  Wife 

A  wife  has  a  right  to  claim  support  from  her  husband. 
She  may  compel  him  to  support  her  by  bringing  an  action  in 
the  proper  court,  or  she  may  order  such  things  as  she  needs 
and  have  them  charged  to  him.  The  things  so  ordered  must, 
however,  be  articles  of  food,  clothing,  medicine,  or  other 
things  necessary  to  health,  life,  or  comfort.  It  has  been  de- 
cided that  theater  tickets  and  bonbons  are  not  necessaries  of 
life.  A  wife  has  a  right  to  order  things  of  a  quality  suited  to 
her  husband's  income.  If  he  is  wealthy  or  in  comfortable  cir- 
cumstances, servants*  wages  and  taxi  hire  may  be  considered 
necessary  for  her  proper  support. 

A  husband  has  a  right  to  require  his  wife  to  perform  such 
services  as  are  necessary  to  conduct  his  household  in  accord- 
ance with  the  style  of  living  to  which  his  income  entitles  him. 
A  wealthy  man  has  a  right  to  ask  his  wife  to  supervise  and 
oversee  his  servants,  to  manage  his  household  accounts,  etc., 
and  a  poor  man  may  rightfully  ask  his  wife  to  perform 
necessary  domestic  work  such  as  cooking,  cleaning,  etc.  This 
is  in  return  for  the  duty  of  support  which  he  owes  her. 

Both  husband  and  wife  have  a  right  to  each  other's  society. 
If  cither  one  leaves  the  other  it  is  good  grounds  for  the  de- 
serted party  to  obtain  a  legal  separation,  or  in  some  states 
a  divorce,  unless  it  was  because  the  husband's  or  the  wife's 
cruelty,  habitual  drunkenness,  or  moral  turpitude  had  made  it 
unsafe  to  live  with  him  or  her.     ( See  §  476. ) 

Neither  husband  nor  wife  can  sue  the  other  for  damages 
for  injuries,  but  either  may  be  bound  to  keep  the  peace  if  he 
or  she  abuses  the  other,  or  the  injured  party  can  secure  a 
legal  separation. 

Notes: 

I.    The  right  to  buy  necessaries  on  the  husband's  ac- 
count is  restricted  by  his  credit  and  the  mer- 


540  PERSONAL  RELATIONS 

chant's  willingness  to  take  rhances  on  collecting 
the  amount 

2.  A  merchant  charging  a  wife's  necessaries  to  a  hus- 
band's  account  should  make  sure  she  is  not  ob- 
taining enough  elsewhere.  If  so,  he  may  not  be 
able  to  collect. 

§  474.    Rights  of  Husband  and  Wife  in  Each  Other's  Property 

The  question  of  dower  and  curtesy  has  been  taken  up 
more  fully  in  the  chapter  on  wills  (§  466)  and  real  property 
(§409).  Where  dower  exists  it  cannot  be  taken  from  the 
wife  unless  she  signs  a  deed  of  the  property  or  a  written 
release  of  her  right  of  dower. 

In  New  York  the  wife  can  cut  off  the  right  of  curtesy  of 
her  husband  by  making  a  will  which  leaves  the  property  to 
other  persons. 

Formerly,  a  husband  had  a  right  to  the  use  of  his  wife's 
real  property  during  her  life.  This  was  called  an  estate  by 
marital  right.  Probably  in  none  of  the  states  of  the  Union 
does  this  right  exist  today.  In  former  times  all  a  wife's  per- 
sonal property  at  once  became  her  husband's  when  they  mar- 
ned,  and  all  he  had  to  do  in  order  to  claim  the  personal 
property  was  to  take  possession.  This  right,  too,  has  been 
greatly  modified  and  in  most  states  entirely  abolished. 

Community  Property.  In  some  states  that  have  their  mar- 
riage  laws  from  the  Roman  law  rather  than  the  common  law 
die  system  of  community  property  prevails  to  a  certain  extent' 
The  marriage  relationship  is  regarded  in  some  respects  as  a 
partnership.  All  property  with  certain  exceptions  acquired 
by  either  husband  or  wife  or  both  during  the  marriage  is 
regarded  as  the  community  property  of  both ;  but  in  most  of 
these  states,  while  the  marriage  law  continues,  the  husband 
has  control  of  it.  Upon  the  death  of  either  the  entire  com- 
munity property  goes  to  the  other  if  there  are  no  children 


HUSBAND  AND  WIFE 


541 


The  property  excepted  from  the  community  rule  and  left 
under  the  separate  ownership  and  control  of  one  or  the  other 
is  known  as  the  separate  property  of  husband  and  wife.  It 
includes  all  property  owned  by  either  at  the  time  of  marriage 
and  all  acquired  afterwards  by  gift,  devise,  or  descent,  or 
property  taken  in  exchange  for  property  of  the  kinds  enumer- 
ated. Generally,  the  income  from  separate  property  is  re- 
garded as  separate  property.  The  states  and  territories  which 
use  this  system  are: 


Arizona 
California 
Louisiana 
Nevada 
New  Mexico 


Philippines 
Porto  Rico 
Texas 
Washington 


Note: 


I.  A  married  woman  may,  as  a  rule,  prevent  her  hus- 
band from  getting  control  of  any  of  her  property 
either  before  or  after  her  death.  In  some  states 
she  still  must  obtain  his  consent  in  order  to  sell 
her  property.  In  most  states  today  a  husband  can- 
not cut  off  his  wife's  right  to  dower  without  her 
consent. 

§475.    Rights  of  Husband  or  Wife  in  Case  the  Other  is 
Injured 

A  husband  has  a  right  to  recover  damages  for  his  wife's 
injuries  because  of  his  legal  right  to  her  services.  The  injury 
deprives  him  of  these  services  and  he  is  awarded  damages  as 
a  compensation  for  his  loss.  He  may  recover,  in  addition,  for 
the  expense  of  medical  attendance  since  he  is  liable  for  it. 

A  wife  has  a  right  to  recover  damages  only  in  case  of  her 
husband's  death,  and  then  only  if  the  statute  law  of  the  state 
gives  her  a  right  of  action.     The  Employers'  Liability  and 


542 


PERSONAL  RELATIONS 


Workmen's  Compensation  Acts  usually  give  this  rieht  of 
action.    (See  Chapter  XLII.) 

In  some  states  either  husband  or  wife  has  a  right  to  re- 
cover for  the  death  of  the  other  under  the  acts  giving  the 
right;  in  others,  only  the  wife  has  a  right  to  such  compen- 
saboa  The  wife  has  in  no  case  a  right  to  recover  for  her 
husband  s  mjuries.  That  right  is  his.  A  wife  has  a  right  to 
recover  for  her  own  injuries,  pain,  suffering,  loss  of  time,  and 
permanent  mjury,  in  addition  to  her  husband's  right  to  dam- 
ages for  loss  of  her  services.  In  all  cases  the  law  of  the  state 
must  be  consulted  in  order  to  know  exactly  what  those  riehts 
are.  * 

§  476.    Divorce 

There  are  two  forms  of  divorce:  one  is  the  limited  divorce 
which  most  people,  when  they  distinguish  between  the  two 
forms,  call  a  separation;  the  other  form  is  the  absolute 
divorce. 

A  legal  separation  merely  gives  to  the  parties  the  right  to 
hve  apart  and  to  the  wife  a  right  to  claim  a  definite  sum  as 
support  from  her  husband  while  living  apart  The  limited 
divorce  does  not  give  any  right  to  marry  again.  If  they  wish 
tte  parties  may  annul  the  separation  at  any  time  by  simply 
living  together  again.  '        VJ 

An  absolute  divorce  completely  separates  the  husband  and 
the  wife  as  though  they  had  never  been  married.  After  an 
absolute  divorce  cither  party  is  entirely  free  to  marry.  If  the 
parties  become  reconciled  after  a  divorce  and  wish  to  be  mar- 
ried again,  it  is  necessary  for  them  to  solemnize  a  new  mar- 
nage. 

The  difficulty  about  divorce  lies  in  the  fact  that  there  is  no 
uniform  law  on  the  subject.  Circumstances  which  one  state 
considers  ground  for  absolute  divorce  are  in  another  merely 
ground  for  a  legal  separation.    In  New  York  the  only  ground 


HUSBAND  AND  WIFE 


543 


for  absolute  divorce  is  unfaithfulness  to  the  marriage  vow. 
In  some  of  the  western  states  what  is  known  as  incompatibility 
of  temperament,  or  inability  to  get  along  happily  together,  is 
considered  ground  for  an  absolute  divorce.  Between  these 
two  extremes,  there  are  states  which  recognize  cruelty,  habitual 
drunkenness,  or  abandonment  as  a  ground  for  such  a  divorce. 
In  almost  all  the  states,  including  New  York,  a  sentence  to 
state's  prison  for  life  severs  the  marriage  relation  and  even 
gives  the  other  party  a  right  to  marry  again  without  a  formal 
divorce.  All  of  these  things,  except  incompatibility  of  tem- 
perament, are  grounds  for  a  kgal  separation  in  states  where 
they  are  not  recognized  as  grounds  for  absolute  divorce. 

The  popularly  condemned  method  of  taking  up  a  tempor- 
ary residence  in  a  state  which  grants  a  divorce  on  easy  grounds 
and  obtaining  a  divorce  without  the  defendant's  appearing  in 
the  case  at  all,  eitiier  in  person  or  by  lawyer,  is,  besides  being 
revolting  to  the  moral  sense  of  the  community,  an  extremely 
unsafe  method.  Unless  the  summons  is  personally  served  on 
the  defendant  within  the  state  where  the  action  takes  place, 
or  the  defendant  voluntarily  appears  in  court  or  is  represented 
by  a  lawyer,  the  decree  is  not  good  outside  the  state  where  it 
is  granted.  Many  states  also  do  not  recognize  such  a  divorce 
if  the  party  takes  up  a  temporary  residence  in  the  state  merely 
for  the  purpose  of  getting  a  divorce. 

If  a  woman  marries  again  after  obtaining  such  a  divorce 
she  may  find  herself  without  any  of  the  rights  of  a  wife  if 
she  and  her  new  husband  afterwards  move  to  a  state  other 
than  the  one  where  the  divorce  was  granted ;  and,  if  anyone 
chooses  to  make  an  objection,  the  children  of  the  second  mar- 
riage may  be  prevented  from  inheriting  property  belonging  to 

their  father. 

Where  the  wife  sues  her  husband  for  an  absolute  divorce, 
she  has  a  right  to  ask  the  court  to  compel  him  to  pay  her 
lawver's  fees  and,  if  the  divorce  is  granted,  to  pay  her  a 


J^T^ 


PERSONAL  RELATIONS 


reasonable  amount  for  her  support  during  the  rest  of  her  life 
At  the  husband's  death  the  wife  is  entitled  to  her  dower  right 
in  all  the  real  estate  which  he  owned  while  they  were  married 
and  before  the  divorce;  but  if  the  wife  dies  first,  her  husband's 
right  of  curtesy  is  lost  by  the  divorce. 

The  dower  right  of  a  wife  who  is  divorced  by  her  husband 
IS  cut  off  by  the  decree  of  divorce. 

In  a  suit  for  a  divorce  neither  the  husband  nor  the  wife 
who  ,s  suing  nor  the  other  party  may  be  required  to  testify  to 
anythmg  which  would  prove  the  right  of  either  to  a  divorce 
Hut  either  one  may  be  required  to  testify  to  anything  which 
would  prevent  the  divorce,  and  either  one  may  be  called  upon 
to  testify  to  their  marriage. 

If  a  wife  is  unable  to  support  herself  during  the  trial  in 
most  states  she  may  apply  to  the  court  for  temporary  alimony, 
that  IS.  an  allowance  from  her  husband  sufficient  for  her  sun- 
port  during  the  trial.  Alimony  must  be  asked  for  during  the 
tnal  of  the  divorce  action  and  must  be  included  in  the  decree 
of  the  divorce.  After  a  decree  of  divorce  has  been  entered 
It  IS  too  late  to  ask  for  alimony. 

If  a  husband  or  a  wife  who  is  suing  the  other  for  divorce 
on  the  ground  of  unfaithfulness  to  the  marriage  vows,  is  him- 
self (or  herself)  proved  guilty  of  unfaithfulness,  no  divorce 
will  be  granted,  but  the  parties  will  be  left  to  the  situation  they 
nave  themselves  created. 

A  divorce  which  was  obtained  by  an  agreement  between 
Ae  husband  and  the  wife  would  be  of  no  value  whatever 
Marnage  to  another  after  such  a  divorce  would  be  no  mar- 
riage  at  all. 


I. 


Review  Questions 

Who  may  marry  in  your  state?    What  are  the  requirements  for 
a  vahd  ceremony?  4""cnicnis  lor 


HUSBAND  AND  WIFE 


545 


2.  Where  can  information  as  to  the  laws  relating  to  marriage  be 

obtained  ? 

3.  Who  is  authorized  to  perform  the  marriage  ceremony  in  your 

state  ? 

4.  What  rights  of  support  has  a  wife?    What  rights  of  assistance 

has  a  husband? 

5.  What  are  the  grounds  for  divorce  in  the  state  in  which  you  live? 

6.  What  rights  in  his  wife's  property  has  a  husband  in  your  state? 

In  your  state  can  a  wife  sell  her  separate  property  without  her 
husband's  joining  in  the  deed? 

7.  What  are  the  features  of  the  law  as  to  property  of  married 

people  in  those  states  that  have  followed  the  Roman  law? 

8.  In  your  state  what  rights  of  recovery  has  a  husband  when  his 
wife  is  injured?    Has  she  any  right  to  recover  for  her  husband's 

injury?     What  rights  has  the  survivor  in  case  of  death? 

9.  Should  there  be  an  amendment  to  the  Federal  Constitution  giving 

Congress  the  power  to  adopt  uniform  divorce  laws  ? 


PARENT  AND  CHILD 


547 


CHAPTER  LXXIV 

PARENT  AND  CHILD 

§  477.    Duties  and  Rights  of  Father  in  Relation  to  Child 

A  father  must  support  his  child.  He  may  be  compelled 
to  do  so  by  the  court  if  necessary,  or  anyone  interested  in 
the  child  has  the  same  right  to  charge  its  father  with  things 
necessary  for  its  support  that  a  wife  has.  The  things  charged 
to  the  father  must  be  food,  clothing,  lodging,  medical  attend- 
ance, or  other  things  necessary  to  its  health ;  and  the  child's 
protector  also  has  a  right  to  charge  the  expense  of  an  educa- 
tion compatible  with  the  social  standing  and  wealth  of  the 
child's  family.  The  food,  clothing,  etc.,  may  be  of  a  quality 
no  higher  than  is  suited  to  its  father's  means. 

In  return  for  this  duty  the  law  gives  the  father  the  right 
to  the  child's  services  and  wages  until  he  becomes  of  age. 
It  is  the  duty  of  the  child  to  obey  its  father  and  he  has  a 
right  to  compel  this  obedience  by  punishment,  provided  such 
discipline  is  not  exercised  in  a  cruel  and  vindictive  manner. 
A  child  cannot  be  put  to  work  until  he  has  reached  a  certain 
age  (generally  12  or  14),  by  the  school  law,  but  any  money 
he  earns  in  his  spare  time  is  legally  his  father's  if  the  latter 
chooses  to  claim  it.  A  father  may  voluntarily  give  a  child  a 
right  to  his  own  services  and  wages.  This  is  called  emancipa- 
tion, and  is  usually  effected  by  acquiescing  in  the  child's  draw- 
ing his  own  wages.  Should  a  daughter  marry  before  coming 
of  age,  she  is  emancipated  thereby. 

Where  Third  Persons  Are  Concerned,  If  a  third  person 
injures  a  child  in  any  way,  the  father  has  a  right  to  sue  for 
damages  for  the  loss  of  the  child's  services.    Where  a  daughter 

546 


has  been  wronged  a  father  may  use  this  form  of  action  to 
punish  the  man  who  wronged  her.  The  loss  of  services  may 
be  purely  a  fiction,  but  in  such  a  case  a  father  has  a  right  to 
this  action,  even  though  his  daughter  performed  only  nominal 
services  about  the  house. 

He  might  also  prosecute  the  man  crirr.inally  if  the  daughter 
was  under  the  age  of  consent  fixed  by  law.  This  is 
under  twenty-one,  but  varies  from  twelve  to  eighteen  in 
the  different  states.  The  father  would  still  have  the  right 
to  recover  damages  although  the  daughter  was  over  the  age 
of  consent,  if  she  was  under  twenty-one,  or  if  she  was  over 
that  age  and  living  at  home  with  him. 

A  father  is  not  liable  to  third  persons  for  injuries  caused 
them  by  his  child  unless  the  injury  was  the  result  of  the 
child's  carelessness  in  performing  some  service  for  the  father. 
As  a  practical  matter,  the  father  usually  pays  the  bills  rather 
than  have  the  child  sent  to  jail  or  put  on  probation. 

Notes: 

1.  If  you  employ  a  boy  or  a  girl  under  age,  you  should 

have  the  father's  written  consent  to  pay  its  wages 
to  the  child. 

2.  Where  a  neighbor's  boy  breaks  a  window,  preserve 

your  temper  and  settle  without  a  quarrel. 

§  478.     Duties  and  Rights  of  Mother  in  Relation  to  Child 

If  the  father  is  living,  the  mother  as  a  general  rule  has 
practically  no  rights  or  duties  towards  her  child  which  the 
law  will  recognize.  She  is  not  called  on  for  its  support  and 
she  is  not  entitled  to  its  earnings.  She  is  not  liable  for  any 
injuries  which  the  child  may  cause  to  other  persons. 

Where  the  father  is  dead  the  mother  is  not  obliged  to 
support  the  child ;  instead  it  may  become  an  object  of  charity. 
Where  the  mother  does  choose  to  support  the  child,  in  some 


548 


PERSONAL  RELATIONS 


PARENT  AND  CHILD 


549 


U 


cases  she  may  De  allowed  to  claim  its  earnings;  in  others  she 
has  no  claim. 

Where  a  daughter  has  been  wronged,  sometimes  the  courts 
will  give  the  mother  a  right  to  recover  damages  from  the 
man  who  wronged  her.  Where  the  mother  has  no  legal  right 
to  her  services,  the  decision  depends  on  the  point  of  view 
which  the  court  adopts. 

^  In  some  states  a  man  may  will  the  guardianship  of  his 
children  away  from  his  wife  at  his  death ;  in  others  the  mother 
is  recognized  as  a  joint  guardian  of  the  children  and  given 
the  first  right  to  them.  In  case  of  a  divorce,  the  courts  give 
the  children  to  the  party  whose  custody  they  think  will  be  for 
the  best  interests  of  the  children. 

Nate: 

I.     Courts  rightly  hold  that  generally  the  mother  should 
have  the  custody  of  the  child. 

§  479.    What  Duties  and  Rights  May  Be  Claimed  by  Adopted 
Children 

To  adopt  children  legally  it  is  necessary  to  file  papers  of 
adoption  with  some  court,  the  procedure  being  regulated  by 
the  statutes  of  the  state.  Unless  these  papers  are  filed,  the 
children  have  no  rights  in  the  property  of  the  foster  parents 
and  no  legal  right  to  use  the  parents'  name.  If  the  children 
have  been  legally  adopted,  they  stand  in  the  place  of  real 
children  so  far  as  the  parents  are  concerned. 

A  child  who  has  been  legally  adopted  has  a  right  to  the 
same  share  in  the  estate  of  a  parent  who  dies  without  leaving 
a  will  which  an  own  child  would  have  received.  (See  Chapter 
LXIII  on  wills.)  In  some  states  adopted  children  have  the 
same  right  by  law  in  property  coming  from  other  people  to 
their  adopted  father  or  mother,  if  these  are  dead,  which  own 
children  would  have  had ;  in  others  they  have  no  right  to  such 
property. 


An  adopted  child,  in  order  to  find  out  whether  it  is  entitled 
to  property  left  by  its  adopted  parents  would  have  to  consult 
the  law  of  the  state  where  it  was  adopted  to  discover  the  legal 
effect  of  the  adoption.  In  order  to  find  out  whether  or  not  an 
adopted  child  is  entitled  to  take  property  left  by  any  rela- 
tive of  its  adopted  parents,  it  is  necessary  to  consult  the  law 
of  the  state  where  the  property  is  located,  if  it  is  real  estate ; 
of  the  state  of  which  the  deceased  person  died  a  resident,  if 
the  property  consists  of  personalty. 

§480.    Children  as  Criminals 

A  child  must  be  old  enough  to  understand  the  nature  of 
its  act  before  it  can  be  treated  as  a  criminal.  The  jury  will 
determine,  from  seeing  the  child  in  court  and  from  the  testi- 
mony, whether  or  not  it  can  be  held  responsible. 

Formerly,  children  committing  crimes  were  treated  in 
much  the  same  way  that  other  criminals  were.  Then  came 
the  reform  school  and  the  children's  courts,  and  today  we 
have  the  probation  system  in  many  states.  In  this  direction 
there  is,  in  most  states,  room  for  much  improvement.  No 
child  should  be  allowed  to  grow  up  a  criminal. 

A  parent  whose  child  is  incorrigible  may  appear  against 
it  in  court  and  have  it  put  in  a  reform  school  or  on  probation. 

A  child  should  be  trained  from  its  very  earliest  years  so 
that  criminal  acts  and  incorrigibility  are  impossible.  No  mat- 
ter how  kindly  or  wisely  administered  a  public  system  of 
dealing  with  incorrigible  children  may  be,  the  experience  will 
leave  a  shadow  on  the  child's  after-life  which  the  parent  by 
wise  and  careful  handling  might  and  should  have  been  able 
to  avoid. 

Note: 

I.     A  criminal  or  vicious  child  should  be  a  greater 
disgrace  to  its  parents  than  to  itself. 


550 


PERSONAL  RELATIONS 


I. 

2. 
3. 

5. 


Review  Questions 

What  is  the  legal  duty  of  a  father  to  a  child?    What  rights  has 

he  over  his  child? 
What  right  of  suit  has  a  father  for  injury  to  his  child?     Is  he 

liable  for  the  torts  or  wrongful  acts  of  his  child  ? 
What  duties  and  what  rights  has  a  mother  concerning  her  children 

when  the  father  is  alive?    When  he  is  dead? 
In  your  state  what  rights  has  an  adopted  child? 
When  can  a  child  commit  a  crime?    Who  decides  as  to  a  child's 

criminality? 


CHAPTER  LXXV 


GUARDIAN  AND  WARD 


§481.    Personal  Guardian 

If  a  child's  father  is  dead,  it  may  be  necessary  to  appoint 
a  personal  guardian.  A  personal  guardian  or  a  guardian  of 
property  would  be  appointed  by  that  court  that  has  charge  of 
probate  matters,  known  as  a  probate  court,  a  surrogate's  court, 
or  an  orphan's  court.  If  the  mother  is  living,  or  any  other 
near  relatives,  she  or  one  of  them  would  have  the  first  right 
to  the  child's  guardianship,  if  a  proper  person  and  able  to 
take  care  of  the  child.  If  there  is  no  dispute  about  the  child's 
custody,  it  is  not  even  necessary  to  go  through  the  formality 
of  being  appointed  unless  there  is  property  belonging  to  the 
child  to  be  taken  care  of.  If  the  mother  or  the  next  nearest 
relative  is  an  improper  person,  it  is  safer  to  go  through  the 
formality  of  legal  appointment.  A  child  old  enough  to  under- 
stand things  (usually  the  age  is  fixed  by  law  at  twelve  or 
fourteen)  is  generally  allowed  by  the  court  to  choose  its  own 
guardian.  At  common  law,  a  child's  father  could  always 
appoint  a  guardian  for  the  child  in  his  will  or  by  a  deed.  In 
states  where  the  equal  guardianship  law  is  in  force,  the  mother 
becomes  the  child's  guardian  on  the  father's  death.  The  father 
may  appoint  a  guardian  in  any  case  where  the  mother  is  dead, 
and  if  the  father  is  dead,  the  mother  has  the  same  privilege. 

The  personal  guardian  has  a  right  to  the  custody  of  the 
child,  and  it  is  his  duty  to  support  it  and  to  provide  for  its 
education.  The  guardian  may  take  the  child's  wages  if  the 
child  is  over  school  age,  otherwise  he  may  take  what  it  may 
earn  in  its  spare  time.    He  has  a  right  to  the  child's  obedience 

551 


ID 


552 


PERSONAL  RELATIONS 


GUARDIAJl  AND  WARD 


ssi 


and  services  about  the  house,  and  has  the  same  right  to  dis- 
cipline the  child  that  the  father  had. 

It  was  formerly  the  custom  to  apprentice  children  out 
to  people  to  learn  a  trade.  The  professions  were  learned  in 
the  same  way.  The  master  generally  supplied  the  child  with 
food  and  clothing,  and  in  return  was  entitled  to  all  the  child's 
services  until  he  became  of  age.  The  master  had  practically 
the  rights  and  the  duties  of  a  personal  guardian  in  respect 
to  the  child,  except  that  he  was  required  to  teach  it  his  own 
trade  or  profession.  A  master  generally  had  the  right  to 
administer  corporal  punishment  when  he  deemed  it  necessary. 

Note: 

I.  It  is  not  necessary  to  appoint  a  personal  guardian 
for  a  child  unless  there  are  no  near  relatives  to 
act  in  that  capacity,  or  unless  the  child  would 
otherwise  fall  into  the  hands  of  a  person  who  is 
morally  or  otherwise  unfit  to  bring  it  up. 

§  48a.    Guardian  of  Property 

Where  property  belongs  to  a  child,  it  is  usually  necessary 
to  appoint  a  guardian  of  the  property.  The  father,  if  he  is 
living,  is  entitled  to  the  appointment.  If  not,  any  near  rela- 
tive may  apply  and,  if  the  court  considers  him  fit,  it  will 
appobt  him.  Otherwise  the  court  will  appoint  whom  it  con- 
siders fit.  The  child  if  old  enough  (usually  about  twelve  or 
fourteen),  may  choose  his  own  guardian,  and  if  the  court  ap- 
proves the  choice  it  will  appoint  that  person. 

If  the  property  is  left  to  the  child  by  will,  the  person 
making  the  will  may  appoint  a  guardian  to  take  care  of  the 
child's  property. 

A  bond  is  always  required  from  a  guardian  of  property. 
He  must  manage  the  child's  property  carefully  and  keep  it  in 
good  repair.  If  there  is  any  surplus  income  over  what  is 
needed  for  the  child's  support  and  education,  or  if  the  income 


IS  to  be  accumulated,  the  guardian  must  invest  the  amount 
in  such  securities  as  are  allowed  by  law  for  such  investments. 
These  are  strictly  limited  to  those  known  as  gilt-edge  securi- 
ties, and  if  the  guardian  invests  in  any  others  he  will  be  per- 
sonally liable  for  any  loss,  while  still  obliged  to  turn  over  to 
the  child  any  gain  that  he  makes  in  so  doing.  He  may,  how- 
ever, without  the  danger  of  such  liability,  invest  property  left 
by  will  in  any  securities  expressly  permitted  by  the  will. 

If  it  becomes  necessary  at  any  time  to  sell  any  of  the 
property  in  order  to  protect  the  child's  interests,  the  guardian 
should  apply  to  the  court  for  permission  to  do  so.  If  at  any 
time  the  income  from  the  estate  ceases  to  be  large  enough 
to  support  and  educate  the  child,  the  court's  permission  must 
be  obtained  before  spending  any  of  the  principal. 

A  guardian  may  always  apply  to  the  court  to  have  any 
doubtful  provision  of  a  will  or  a  deed  interpreted  to  him. 
In  any  doubtful  case  it  is  safer  to  do  this  and  to  get  the 
court's  permission  to  do  anything  necessary. 

Note: 

I,     A  trust  company  is  the  safest  guardian  for  property 
belonging  to  a  child. 


I. 


2. 


Review  Questions 

When  should  a  personal  guardian  be  appointed?    Who  in  your 

state  would  appoint  such  a  guardian?    What  rights  and  duties 

has  a  personal  guardian? 
What  are  the  functions  of  a  guardian  of  property?     How  may 

such  a  guardian  be  appointed  ?    Why  would  a  bond  be  required  ? 
Why  is  a  trust  company  a  better  guardian  of  property  than  an 

individual  ? 


IK' 


PART  XIII 


SURETYSHIP 


II 


CHAPTER  LXXVI 

THE  CONTRACT  OF  SURETYSHIP  OR  OF 

GUARANTY 


§  483.    Definition 

The  contract  of  suretyship  is  a  contract  to  be  responsible 
for  the  debt,  default,  or  miscarriage  of  another.  There  are 
two  kinds  of  such  agreements: 

1.  One  is  an  agreement  to  be  responsible  personally  if 
the  debtor  fails  to  pay;  it  may  be  enforced  just  as  soon  as 
the  debt  falls  due  and  is  not  paid.  This  is  the  contract  of 
suretyship  proper. 

2.  The  other  is  a  guaranty  that  the  other  party  will  pay 
his  obligations,  and  is  called  a  contract  of  guaranty.  In  this 
case,  the  person  with  whom  the  agreement  is  made  must  sue 
the  debtor  before  he  can  collect  from  the  guarantor. 

There  are  three  sorts  or  forms  of  guaranty:  (i)  general 
or  special,  (2)  limited  or  continuing,  and  (3)  absolute  or 

conditional. 

The  party  assuming  the  responsibility  is  called  the  "surety" 

or  "guarantor." 

The  party  who  is  primarily  liable  is  called  the  "principal 

debtor"  or  "obligor." 

The  party  with  whom  the  agreement  is  made  is  called 
the  "creditor"  or  "obligee." 

The  party  who  indorses  negotiable  paper  is  not  called  a 
surety,  though  his  responsibility  is  similar.  An  indorser*s 
responsibility  is  governed  by  very  different  rules  from  those 
relating  to  sureties.    (See  §  179.) 

557 


^•J*' 


SURETYSHIP 


§  484.    Nature  of  Contract 

The  contract  of  suretyship  is  generally  part  of  the  original 
contract  between  the  parties,  and  usually  consists  of  signing 
some  paper  such  as  a  bond  or  note  as  surety  along  with  the 
maker  of  the  original  obligation.  If  a  man  signs  an  executor's 
bond  along  with  the  executor,  he  becomes  a  surety  for  the 
faithful  performance  of  the  executor's  duties. 

The  contract  of  guaranty  is  a  separate  agreement  in  the 
nature  of  an  offer  to  be  responsible  for  the  extension  of  credit, 
or  a  separate  contract  written  on  the  back  of  some  other 
agreement    If  you  write  to  Paul  Jones  asking  him  to  extend 
credit  to  John  Doe,  and  stating  that  you  will  see  him  paid,  or 
if  you  write  "I  guarantee  the  within  contract"  on  the  outside 
of  a  contract  and  sign  your  name,  you  become  a  guarantor. 
Many  men  have  come  to  grief  through  their  careless  will- 
ingness to  become  responsible  for  others.    Long  ago  Solomon 
said:  "A  man  void  of  understanding  striketh  hands  and  be- 
cometh  surety  in  the  presence  of  his  friend."     It  is  wrong 
for  any  man  to  become  responsible  for  the  financial  mishaps 
of  another  unless  he  can  afford  to  lose  the  money.    When 
men  who  cannot  afford  to  lose  the  money  sign  as  sureties, 
they  take  chances  they  have  no  right  to  take.    There  is  always 
a  risk  involved  or  the  surety  would  not  be  demanded. 
Notes: 

1.  Do  not  take  any  risk  as  surety  for  another  which 

you  cannot  afford  to  pay  if  required. 

2.  Do  not  ask  a  friend  to  be  your  surety  unless  the 

friend  can  afford  to  lose  the  money. 

1 485-    Written  Contnct 

The  contract  of  suretyship  or  guaranty  must  always  be 
in  writing  in  order  to  be  enforced.  It  is  one  of  the  classes 
of  contracts  specified  in  the  Statute  of  Frauds,  i.e.,  a  promise 


SURETYSHIP  OR  GUARANTY  CONTRACT 


559 


to  answer  for  the  debt,  default,  or  miscarriage  of  another. 

(See  §48.)  .  , 

If  a  person  agrees  to  pay  outright  for  somethmg  to  be 

done  for  another,  or  goods  to  be  delivered  to  another,  this  is 
not  a  contract  of  suretyship  and  need  not  be  written.  For 
instance,  if  John  Brown  says  to  a  grocer,  "Deliver  groceries  to 
James  Smith  and  I  will  pay  for  them,"  this  is  not  a  contract 
of  suretyship  or  guaranty,  but  an  outright  agreement  to  pay 
on  the  part  of  John  Brown— and  the  charge  should  be  against 
Brown  and  not  against  Smith.  But  if  Brown  should  write  to 
the  grocer,  "If  you  will  sell  groceries  on  credit  to  Smith,  I 
will  pay  for  them  if  he  does  not,"  this  is  a  contract  of  guaranty 
and  must  be  in  writing.  Brown  is  promising  to  pay  only  in 
event  that  Smith  does  not. 

Notes: 

1.  If  you  sell  goods  on  credit,  know  exactly  to  whom 

tiie  goods  are  to  be  charged. 

2.  If  you  sell  with  a  guaranty,  be  sure  the  conditions 

are  stated  in  writing  and  signed  by  the  guarantor. 


§  486.    Parties 

There  are  three  parties  to  a  contract  of  suretyship— the 
creditor  or  obligee;  principal  debtor  or  obligor;  and  the  surety 

or  guarantor. 

The  surety  must  be  competent  to  contract.  He  is  the  one 
who  incurs  responsibility  under  the  contract  of  surety ;  hence, 
it  is  esserftial  that  he  be  competent  to  bind  himself.  (The 
reason  for  taking  a  surety  may  have  been  because  the  principal 
was  not  competent  to  contract.)  The  promise  to  be  respon- 
sible for  the  debt  of  the  obligor  must  be  made  direct  to  the 
obligee  or  the  surety  will  not  be  a  party  to  the  contract.  Sign- 
ing a  note  or  paper  as  surety  is,  however,  a  sufficient  promise 
to  the  obligee.    (See  §§  i73»  i74-) 


S6o 


SURETYSHIP 


It 


il 


907*    Congidenitioii 

The  contract  of  the  obligee  with  the  principal  debtor  or 
obligor  is  the  consideration  for  the  surety's  promise.  If  it  is 
a  contract  of  guaranty,  the  consideration  is  the  giving  of 
credit  to  the  principal  debtor.  If  a  bond  or  note,  it  is  the 
furnishing  of  the  money  for  which  the  bond  or  note  was  given. 
In  the  case  of  a  bond  for  the  faithful  performance  of  the 
duties  of  an  officer,  the  enjoyment  of  the  office  is  the  con- 
sideration or  in  the  case  of  a  bail  bond  the  freedom  of  the 
prisoner  is  the  consideration  for  the  agreement  of  the  surety. 

If  the  credit  has  been  given  to  the  principal  debtor  before 
the  contract  with  the  surety  or  guarantor,  there  is  no  con- 
sideration for  this  second  contract  and  the  surety  is  not  bound. 
In  such  a  situation,  to  make  a  valid  contract  and  hold  the 
surety  the  creditor  or  obligee  must  pay  the  surety  something, 
remit  something  to  the  obligor,  or  extend  the  time  of  payment,' 
so  that  there  may  be  a  good  consideration  for  the  agreement 
of  the  surety.     (See  §  44.) 

Notes: 

1.  If  you  are  selling  on  a  guaranty,  have  a  written  con- 

tract showing  that  you  grant  the  credit  in  con- 
sideration of  the  guaranty. 

2.  If  the  surety  comes  in  after  the  credit  has  been 

granted,  there  must  be  a  new  consideration. 

§488.    Delivery  and  Acceptance 

A  bond,  note,  or  paper  of  similar  nature,  which  is  indorsed 
or  guaranteed,  must  be  delivered  to  the  obligee  and  accepted 
by  him  before  it  becomes  a  contract  and  the  surety  becomes 
liable  on  it.  Simply  receiving  the  paper,  however,  without 
any  comment,  is  a  sufficient  acceptance. 

In  a  contract  of  guaranty,  the  creditor  must  notify  the 
guarantor  that  he  accepts  his  offer  and  will  extend  the  credit 


SURETYSHIP  OR  GUARANTY  CONTRACT     $61 

asked  for  in  reliance  on  his  guaranty.  Even  where  the  creditor 
himself  asks  for  the  guaranty,  he  must  still  notify  the  guar- 
antor  that  credit  has  been  extended. 

If  the  guaranty  is  for  all  sales  during  a  certain  period  of 
time,  such  as  a  year,  the  creditor  should  notify  the  guarantor 
at  once  that  he  has  granted  the  credit,  and  at  the  end  of  the 
period  he  should  notify  the  guarantor  again  of  the  amount  of 
credit  he  has  granted  during  the  year. 

Note: 

I.     Before  you  deliver  goods  on  a  guaranty  notify  the 

guarantor  that  you  take  him  as  security. 


'  Review  Questions 

I  What  is  the  nature  of  the  contract  of  suretyship? 

2.  Distinguish  between  suretyship  and  the  contract  of  guaranty. 

1  Isacontract  of  guaranty  negotiable?    Explain, 

4.  How  does  the  liability  of  a  guarantor  differ  from  that  of  an 

indorser  of  a  promissory  note? 

5.  Why  must  all  contracts  of  surety  or  guaranty  be  in  writing? 
6*     Distinguish  between  an  original  contract  to  pay  for  another 

and  the  contract  of  suretyship. 

7.  Distinguish  as  to  the  liability  of  a  guaranty  for  payment,  that 

of  one  for  collection  and  that  of  a  continuing  guaranty. 

8.  Who  are  the  parties  to  a  contract  of  suretyship  or  guaranty? 
a    How  should  a  contract  of  suretyship  or  guaranty  be  adopted? 

10.  An  accountant  agreed  with  a  corporation  through  its  president 

to  examine  the  books.  After  beginning  work  he  became  un- 
easy and  asked  the  president  to  guarantee  payment  personally. 
This  the  president  did  in  writing.  When  the  work  was  finished 
the  corporation  was  insolvent.     Was  the  president  legally 

liable  ? 

11.  Is  a  surety  liable  for  interest  on  claim  after  default? 

12.  What  is  the  distinction  between  guaranteeing  payment  and  guar- 

anteeing collection? 

13.  "I  hereby  guarantee  the  collection  of  the  within  note."    Is  the 

foregoing  valid? 


:fl 


11 


RIGHTS  OF  SURETY  OR  GUARANTOR 


563 


i 
II 


I 


IP 


CHAPTER  LXXVII 

RIGHTS  OF  SURETY  OR  GUARANTOR 
§  489-    Notice 

fixed  amount  due  on  a  certain  dav   fU^     ^"'^^anieea  is  of 
liable,  though  not  no^J^l  ^'^^^JtZS  ,^, 
creditor,  or  obligee,  must  enforce  any  securkv  wE  h  ^ 
have  and  bring  suit  against  the  oblfgoTSre  t  T^ 

to  the  guarantor  to  collect  what  stZ:^  Jns  L     ""  '"™ 

the  nd^L^'Sffl"^^''"^  "^*™™"*^  "'*  indorsement. 

te  d^W    ?  "^  ^  '""■'*y  '"  *«'  *^^e  must  always 

be  demand  of  payment  and  notice  that  it  h==  t^         r      . 

in  order  to  hold  him  liable.  ^™  '"'^^"'"^' 

I.    A  ^arantor  must  have  prompt  written  notice  if  the 
obhgor  falls  down. 

§  490.    Defenses 

If  the  creditor  cannot  enforce  thp  rnnf,,^* 
debtor  because  of  some  defecrL    t    J  ^^'"'^  *^ 

against  the  surety  either    ThKtaLL.  ''""°'  '"'°'"  '' 

}     uicr.    1  nis  statement  does  not  apply  whert 

562 


the  creditor  cannot  enforce  the  contract  because  the  debtor 
was  under  age,  or  insane,  or  suffering  under  some  disability 
which  by  law  made  him  incapable  of  contracting.  In  such  a 
case  the  very  reason  for  having  a  surety  was  to  protect  the 
creditor  from  loss  through  such  disability  and  the  surety  is 

not  released. 

Fraud  practiced  upon  the  principal  debtor  or  the  surety 
would  be  a  good  defense  to  an  action  to  enforce  the  contract 
against  the  surety. 

§  491.    Reimbursement 

After  a  surety  has  paid  the  debt,  he  is  entitled  to  turn 
around  and  collect  it.  if  he  can.  from  the  obligor,  who  had 
incurred  the  original  obligation.  Instead  of  paying  the  debt 
the  surety  may,  if  he  chooses,  apply  to  a  court  of  equity  to 
compel  the  obligor  to  pay  it.  and  to  have  any  security  which  the 
obligor  may  have  given  to  secure  the  debt  sold  to  pay  it. 
He  is  then  liable  only  if  the  obligor  is  absolutely  unable  to 
pay  and  any  existing  security  does  not  sell  for  enough  to 
satisfy  the  debt. 

§  49a.    Subrogation 

In  addition  to  his  right  to  recover  from  the  original  debtor 
anything  he  has  paid  on  the  contract,  the  surety  has  the  right 
to  be  put  in  the  creditor's  place,  so  far  as  remedies  against 
the  debtor  are  concerned;  that  is,  the  surety  is  entitled  to  all 
the  creditor's  rights  against  him.  including  the  right  to  enforce 
any  security  for  the  payment  of  the  debt.  This  is  styled  the 
"right  of  subrogation." 

§  493.    Contribution 

A  cosurety  is  one  who  is  equally  bound  with  another  for 
the  debt  default,  or  miscarriage.  Usually  both  sureties  sign 
the  same  instrument  at  the  same  time,  but  this  is  not  essential. 


564 


SURETYSHIP 


■  i 


I. 


wno  ^ys  the  debt  is  entitled  to  recover  from  each  of  them  a 

?Se  ar:f':r  °'  "'r  '^  •^^  ^'-  '^^  -editor  mtyi; 

oSi  T/..  .  ""  *'*°"*  ^«="""e  *«^  c«"sent  of  all  the 
^^J^'u"^'  '°'  '*  *•"  ''^^'^  *«=  «^«  effect  as  releask^ 
2^  .  the  security  and  wiU  discharge  the  oblig^fon^ 
the  rcmamder  of  the  cosureties  to  that  «tcnt 

§  494-    Extension  of  Time 

Merely  extending  the  time  to  pay  a  debt  without  receiving 
cTLT  '°"^'''"^*'«"  f°'  't  WiU  not  release  the  J^tyZ 

woSh  rM!f  ■  ''*'"'  extension,  based  on  a  consideration 

would  release  a  surety  or  guarantor. 

If  a  debt  is  guaranteed,  a  release  or  extension  mav 
let  the  guarantor  out. 

§  495-    Discharge 

The  surety  can  be  held  to  the  contract  nnl„  ,c  t,        j    • 
If  the  cr«1if«r  ,„A  *u        •     . '^  *^°"^""  on'X  as  he  made  it. 

change  Lk  a/  ?'  ^T'^^  '^'^°'  ^^'  ^  make  any 
tTJr  Ki  '  t7  r''  ^'*  *'  '""'''y''  •^°"sent  or  he  will  cea^ 
to  be  liable.    If  the  surety  is  not  released  hv  HM,    •        ,? 

tion.  the  original  contrac't  st  Js.  If le  ^^'^^^^  "  ^f  7' 
prevent  the  delay,  he  must  notify  the  ced^or  to  e^foTSl^ 
ment  or  must  himself  bring  suit  to  do  so  ^^" 

If  the  creditor  releases  the  principal  debtor  or  any  of  the 
secunty  given  by  him  for  the  payment  of  the  debt,  hTfoses  Ws 

debt  and  releases  pfrt^f  ^^TZ s^^^^^'^TZ^J: 
he  will  be  entitled  to  collect  from  the  surety  on^  fhT  ^' 
of  the  debt  less  what  the  land  so  releaLdTwortt        ""'""* 


RIGHTS  OF  SURETY  OR  GUARANTOR 


565 


A  surety  must  usually  pay  the  debt  in  full  before  he  can 
demand  to  be  put  in  the  creditor's  place. 

If  the  creditor  releases  the  obligor  from  payment,  he  re- 
leases the  surety  also.  If,  however,  at  the  time  he  releases  the 
debtor,  the  creditor  states  that  he  reserves  his  right  against 
the  surety,  and  so  notifies  the  surety,  the  surety  remains  liable, 
but  after  the  surety  has  paid  the  debt  he  may  collect  it  himself 
from  the  principal. 

A  surety  on  a  bond  for  the  faithful  performance  of  the 
duties  of  some  responsible  position,  will  be  released  from 
liability  if  the  employer  continues  employing  the  person  hold- 
ing such  position  after  discovering  dishonesty  in  his  dealings. 

In  some  states  the  guarantor  or  surety  may  give  notice  to 
the  creditor  to  enforce  his  rights  against  the  principal  debtor 
when  the  contract  falls  due,  and  if  the  principal  debtor,  though 
fully  able  to  meet  the  obligation  at  that  time,  afterwards  be- 
comes unable  to  do  so,  the  creditor  cannot  enforce  the  liability 
against  the  surety. 

Before  any  credit  has  been  extended  m  reliance  on  his 
promise,  a  guarantor  may  give  notice  to  the  person  from  whom 
he  has  requested  credit  that  he  has  changed  his  mind  and 
refuses  to  be  liable  for  the  party  for  whom  he  asked  the  credit. 
He  cannot  thereafter  be  held  responsible  for  any  credit  which 

may  be  extended. 

Death.  If  the  obligor  dies  before  he  has  entered  upon  the 
official  duties  for  which  a  bond  was  given,  or  before  he  has 
received  any  money  or  taken  advantage  of  any  credit  to  which 
he  was  entitled  under  the  agreement,  there  is  of  course  nothing 
to  hold  the  surety  for.  After  the  principal  obligor  has  in- 
curred any  liability  under  the  agreement,  the  surety  becomes 
liable  and  remains  so  even  in  case  of  the  principal  obligor's 

death. 

If  the  surety  himself  dies,  his  obligation  is  not  discharged 
but  his  estate  still  remains  liable  on  the  contract.    It  must  be 


'^  — 


566 


SURETYSHIP 


enforced  against  the  other  sureties  first,  however.  After  the 
death  of  a  guarantor,  no  further  credit  may  be  extended  in 
reliance  on  his  guaranty,  but  his  estate  remains  liable  for 
what  has  already  been  given. 

Notes: 

I.  The  creditor  on  an  obligation  should  enforce  it 
within  a  reasonable  time  after  it  falls  due,  in  order 
to  be  sure  of  his  rights  against  the  surety  or 
sureties. 

Any  changes  in  an  agreement  without  the  sureties' 
written  consent  may  release  them. 


2, 


V 


\      'i 


'i  'I 


Review  Questions 

1.  What  is  the  distinction  between  sureties  and  guarantors  as  to 

giving  notice  of  default? 

2.  If  the  principal  debtor  was  a  minor,  would  the  surety  be  held  > 
3-    If  a  surety  is  compelled  to  pay,  what  redress  has  he? 

4.  A  creditor  holds  collateral  and  debt  is  guaranteed.    Debtor  de- 

faults and  guarantor  pays.    What  becomes  of  collateral? 

5.  If  the  owner  anticipates  a  portion  of  the  payment  due  the  con- 

tractor, IS  the  surety  thereby  released? 

6.  A  owes  B  $500  and  offers  his  note  for  the  amount  for  four 

months  with  surety  as  follows:  "I  agree  to  become  responsible 
as  surety  for  the  payment  of  A's  note  for  Five  Hundred 
Dollars  ($500)  dated  this  day."  Signed  "C.»  When  the  note 
becomes  due,  A  pays  $ioo  on  account  and  gives  B  a  new 
note  for  $400  at  four  months.  This  is  not  paid,  and  B  sues 
C  on  his  surety  contract.  Can  C  make  any  defense,  and  if 
so,  what? 


PART  XIV 
DEBTS  AND  INTEREST 


CHAPTER    LXXVIII 


DEBTS 


§  496.    Definitions 

Debt  is  the  owing  of  money,  goods  or  services  to  another. 
It  is  defined  in  the  Century  Dictionary  as  follows:  "That 
which  is  due  from  one  person  to  another,  whether  money, 
goods  or  services  and  whether  payable  at  present  or  at  a 
future  time;  that  which  one  person  is  bound  to  pay  or  to 
perform  for  another ;  what  one  is  obliged  to  do  or  to  suffer ; 
a  due;  a  duty;  an  obligation."  More  particularly  in  law  the 
word  signifies  the  owing  of  money.  The  person  owing  is 
called  the  debtor  and  the  other  party  is  called  the  creditor. 

Generally,  the  creditor  will  make  a  demand  for  the  debt 
when  it  is  due,  but  legally  it  is  the  duty  of  the  debtor  to  pay 
the  creditor  at  his  place  of  business  on  such  date  as  the  debt 
may  be  due. 

§497.    Evidences  of  Debt 

If  a  debt  is  not  paid  when  it  is  due,  the  creditor  can  sue 
for  payment.  In  such  case  the  primary  question  is,  how  is 
the  creditor  to  prove  his  claim?  The  strongest  proof  would 
be  a  promissory  note  signed  by  the  debtor  of  which  the  creditor 
was  a  holder  in  due  course.  An  acknowledgment  of  indebted- 
ness would  be  equally  good  to  prove  the  claim,  but  it  might 
be  subject  to  defenses  or  counterclaims.  An  account  stated, 
or  accounts  as  shown  by  books  of  original  entry,  such  as  a 
day-book  or  blotter,  would  be  good  evidence.  If  the  obliga- 
tion is  for  goods  delivered  or  shipped,  receipts  for  the  goods 
or  bills  of  lading  would  be  evidence  that  they  had  been  sent 

569 


570 


DEBTS  AND  INTEREST 


i 


but  not  that  they  had  not  been  paid  for.  So  many  people  are 
careless  in  their  business  transactions,  that  many  just  and  good 
claims  cannot  be  coUected  because  the  evidence  to  prove  them 
in  court  is  lacking. 

§  498-    Open  and  Stated  Accounts 

An  open  or  current  account  is  the  usual  record  kept  by  a 
merchant  of  sales  of  goods  which  had  been  made  to  the  debtor 
from  time  to  time.  When  suit  is  brought  on  an  open  account. 
It  IS  necessary  to  prove  from  the  blotter  or  other  book  of 
original  entry  the  fact  of  the  sales  at  the  times  and  in  the 
quantities  specified.  A  debtor  has  always  the  right  to  call 
for  a  bill  of  particulars  stating  wherewith  he  is  charged. 

A  stated  or  closed  account  is  where  an  account  has  been 
rendered  and  the  party  against  whom  it  has  been  rendered 
has  agreed  to  it  expressly  or  impliedly  by  receiving  the  bill 
and  making  no  objections  within  a  reasonable  time.  Against 
a  stated  account  the  Statute  of  Limitations  would  run  from 
the  time  of  the  agreed-to  statement.  The  Statute  of  Limita- 
hons  on  such  accounts  in  the  State  of  New  York  provides 
that  action  may  not  be  brought  after  six  years. 

Where  an  account  is  aU  on  one  side  of  the  ledger,  the 
btatute  of  Limitations  runs  against  each  separate  item.  Where 
there  has  been  a  mutual  account  with  entries  on  both  sides 
It  would  run  from  date  of  the  last  balancing  item  It  i<i 
necessary  for  this  that  the  accounts  really  be  mutual  and 
not  merely  charges  on  one  side  and  a  red  ink  balance  on  the 
Other. 

§  499-    Receipts  and  Releases 

\Vhen  payments  are  made,  either  partial  or  complete,  the 
creditor  should  give  the  debtor  a  receipt  showing  the  amount 
and  the  date  when  payment  had  been  made.     The  debtor 
however,  has  no  legal  right  to  insist  on  a  receipt.     He  can 


DEBTS 


S7I 


take  a  witness  with  him  who  will  note  the  payment  and  be 
able  to  testify  afterwards  if  the  matter  is  disputed.  (See 
§  78,  "Tender.")  If  he  makes  payment  by  check  or  by  certi- 
fied check,  the  cancelled  check  would  be  evidence  of  the  pay- 
ment. If  the  creditor  will  accept  a  check  indorsed  "Payment 
in  full  of  all  accounts,"  or  "Payment  in  full  of  (a  specified 
matter)"  that  would  be  a  good  receipt  if  payment  is  in  full 
or  if  there  is  any  dispute  as  to  the  amount  owed.  If  such  a 
check  were  only  part  payment  of  an  undisputed  claim  the 
balance  might  still  be  collected. 

A  release  is  usually  a  more  formal  instrument  than  receipt. 
Where  matters  have  been  in  dispute  or  where  claims  conflict 
and  the  parties  finally  agree  on  a  settlement,  one  or  both 
parties  will  execute  a  general  release.  This  is  a  very  formal 
instrument;  its  phrases  would  include  all  matters  that  might 
by  any  possibility  be  in  dispute  between  the  parties,  and  it  is 
signed  under  seal  so  that  it  becomes  a  sealed  instrument  and 
cannot  thereafter  be  disputed. 

§500.    Part  Payment  in  Full  Settlement 

It  is  a  well-settled  doctrine  of  law  that  part  payment  of 
a  claim  the  amount  of  which  is  not  in  dispute  cannot  be  a 
settlement  of  the  whole  claim.  It  happens  many  times  that 
a  man  who  cannot  pay  the  full  amount  against  him  will  pay 
one-half  or  more  on  the  condition  that  he  is  to  have  a  receipt 
in  full.  The  law  holds,  however,  that  paying  part  of  the 
amount  that  is  due  to  be  paid  in  full  is  not  a  consideration 
that  will  release  him  from  the  payment  of  the  part  he  has 
left  unpaid.  If,  instead  of  paying  money,  he  pays  property, 
the  law  would  not  inquire  as  to  its  value,  and  such  a  settle- 
ment would  be  final.  Therefore  a  man  who,  pays  part  cash 
and  part  in  some  article  of  property  would  receive  a  release 
in  full  that  could  not  be  disputed  later.  It  will  also  be  settled 
by  his  taking  a  receipt  in  full  under  seal.     If,  however,  a 


572 


DEBTS  AND  INTEREST 


claim  is  in  dispute,  a  part  payment  of  the  claim  may  be 
accepted  as  a  compromise  and  in  such  case  will  constitute  full 
settlement  of  the  whole  claim. 

§  501.    Accord  and  Satisfaction 

An  accord  is  an  agreement  between  two  persons  one  of 
whom  has  a  claim  against  the  other,  that  the  debtor  shall 
^vc  or  do  something  in  consideration  of  which  the  creditor 
shall  consider  his  claim  satisfied.  When  such  an  agreement 
has  been  made  and  performed,  it  is  caUed  an  "accord  and 
satisfaction,"  and  no  further  claim  against  the  debtor  may 
be  brought  by  the  creditor. 

If  the  parties  to  such  an  agreement  accept  a  different  thing 
from  that  which  they  are  entitled  to,  they  are  nevertheless 
bound  and  a  promise  later  made  by  the  debtor  to  do  something 
further  in  order  to  satisfy  the  claim  is  without  consideration 
and  therefore  not  enforceable. 

If  the  claim  against  the  debtor  has  been  an  instrument 
tinder  seal,  an  accord  and  satisfaction  wiU  only  be  valid  if 
It  IS  likewise  under  seal.  If,  however,  money  is  due  and  by 
statute  the  debtor  has  the  right  by  bringing  the  sum  due  the 
creditor  and  such  interest  as  may  have  accrued  into  court  to 
be  discharged,  an  oral  accord  and  satisfaction  is  good. 

The  agreement  of  accord  and  satisfaction  may  be  either 
express  or  implied  and  as  in  aU  contracts  must  have  a  con- 
sideration to  be  valid.  It  must  also  be  understood  at  the  time 
of  the  agreement  that  such  things  as  are  to  be  performed  by 
the  debtor  shaU  constitute  an  extinction  of  any  claim  that  the 
creditor  may  have  against  him,  and  the  creditor  must  also 
accept  it  with  the  intention  of  having  such  performance  satisfy 
his  claim.  These  latter  requirements  are  absolutely  essential 
and  without  them  there  can  be  no  valid  accord  and  satisfac- 
tion. 


DEBTS 


573 


§502.    The  Appropriation  of  Payment 

The  question  sometimes  arises,  when  a  debtor  pays  part 
on  account  consisting  of  items  that  became  due  at  different 
dates,  as  to  the  items  on  which  the  payment  is  to  be  applied. 
If  the  debtor  states  when  making  his  payment  that  it  is  to  be 
applied  to  certain  particular  claims,  he  has  the  right  to  do  this 
and  the  creditor  cannot  apply  it  to  those  older  claims  that 
are  most  likely  to  be  outlawed  by  the  Statute  of  Limitations. 
If  the  debtor,  however,  makes  payment  and  says  nothing  about 
its  appropriation,  the  creditor  may  use  his  discretion  and  apply 
it  to  the  oldest  items  on  the  account. 

§  503.    Equitable  Jurisdiction  in  Actions  for  an  Accounting 

In  the  case  of  a  partnership  disagreement  or  where  trustees 
are  not  giving  satisfaction,  the  parties  injured  may  go  into 
a  court  of  equity  and  ask  that  the  other  partner  or  partners, 
or  trustee  or  trustees,  shall  be  compelled  to  make  an  accounting. 
If  a  proper  case  is  made  out,  the  judge  will  order  such  an 
accounting  to  be  made,  usually  sending  it  to  a  referee  with 
direction  to  go  into  the  account  and  render  a  report  back 
to  the  court.  If  the  court  affirms  the  report  of  the  referee, 
the  accounting  is  conclusive  as  between  the  parties. 


I. 


2. 


Review  Questions 

What  is  a  debt?    When,  where,  and  to  whom  must  payment 

of  a  debt  be  made? 
Is  a  ledger  made  from  slips  a  book  of  original  entry?     Can 

cash  loans  be  proved  from  check-book  stubs  ?    Or  by  cash-book 

entries  ? 
3.    Distinguish  the  difference  between  an  open  and  a  stated  account. 

To  what  extent  is  an  account  stated  conclusive?     Does  the 

mere  rendering  of  an  account  make  it  an  account  stated  ?    On 

what  grounds  may  an  account  stated  be  opened? 
May  one  recover  on  an  account  stated  on  proof  of  the  admission 

of  a  general  balance  without  proving  the  items? 


4. 


574 


DEBTS  AND  INTEREST 


r 


la 


II. 


12. 


5-  After  how  many  years  is  a  mutual  account  between  merchants 
barred  ?    When  does  the  Statute  of  Limitations  begin  to  run  > 

4  What  constitutes  a  breach  in  the  continuity  of  an  account 
current? 

7,  Within  what  time  must  one  object  after  receiving  an  account  to 
prevent  its  becoming  an  account  stated? 

a  When  does  the  Statute  of  Limitations  begin  to  run  on  an  account 
stated  ? 

9.    What  is  a  release?    What  is  a  mutual  release?    May  a  mutual 

release  given  on  adjustment  of  old  accounts  be  disturbed? 

Explain.    May  a  release  be  disturbed? 
Is  a  debtor  legally  entitled  to  a  receipt  ?    How  may  payment  be 

proved?    How  may  a  check  be  used  as  evidence  of  payment? 
C  accepts  of  K  the  note  of  X  in  full  for  K's  debt  to  C,  though 

the  amount  of  the  note  does  not  cover  the  debt.    Has  C  still 

a  claim? 

Is  an  indorsement  "in  full  of  all  accounts  to  date"  on  a  check 
accepted  by  creditor  (amount  being  insufficient)  a  discharge 
for  a  disputed  claim? 
13.    When  a  creditor  accepts  a  part  in  satisfaction  of  the  whole  debt, 
how  may  the  debtor  guard  against  further  demands  ? 

A  debtor  sends  a  check  to  creditor  stating  that  it  is  "in  full," 
and  the  creditor  cashes  the  check  but  declines  to  regard  it  as 
in  fiiU.  Debtor  demands  receipt  in  full  or  return  of  check. 
Creditor  demands  payment  of  balance.  Is  there  an  accord 
and  satisfaction? 

Which  has  the  first  right  to  apply  a  payment  against  any  one 
of  several  debts,  the  debtor  or  the  creditor?  What  is  the  rule 
for  the  appropriation  of  payments  made  by  a  person  who  owes 
several  interest-bearing  debts  to  the  same  creditor? 
l4  When  has  equity  jurisdiction  in  cases  of  account?  Where  one 
party  is  entitled  to  an  accounting  from  another,  what  is  the 
usual  and  proper  legal  proceeding  to  secure  such  an  account  ? 

17.  Under  what  circumstances  is  taking  a  debtor's  note  payment  of 
•    a  pre-existing  debt? 

18.  If  the  note  is  not  Uken  as  absolute  payment  and  is  afterward 

dishonored,  must  creditor  sue  on  it  before  returning  to  his 
original  demand? 

19.  Is  the  note  of  a  third  party,  taken  at  time  debt  is  created,  pay- 

ment therefor? 


14. 


15. 


CHAPTER  LXXIX 

ENFORCING  PAYMENT  OF  DEBTS 

§  504.    When  the  Creditor  Has  Some  Security  for  the  Debt 

Security  may  be  in  the  form  of  a  mortgage  on  land  or  on 
personal  property,  or  it  may  consist  of  a  statutory  lien,  or  of 
a  right  to  reclaim  property  under  a  contract  of  conditional 

sale.    (See  §  95)  .      .  . 

If  the  security  is  a  real  estate  mortgage,  and  the  debtor 

has  neglected  or  definitely  refused  to  make  the  payments 

agreed  upon,  the  proper  course  is  to  foreclose.    Should  the 

mortgage  provide  that  on  default  the  holder  may  sell  the 

property,  a  foreclosure  proceeding  is  still  necessary.    In  order 

to  give  a  clear  title,  the  suit  to  foreclose  must  be  brought  and 

all  legal  formalities  complied  with  before  the  property  is  sold. 

It  must  be  sold  at  public  auction,  unless  the  mortgage  permits 

a  private  sale,  the  former  being  the  wiser  method  to  follow  in 

all  cases,  as  afterwards  no  questions  concerning  the  legality  of 

the  sale  will  arise. 

When  the  mortgage  is  on  real  property  consisting  of 
several  lots  or  parcels,  they  must  be  offered  separately,  unless 
the  mortgage  specifically  permits  that  they  be  sold  as  a  whole. 

Where  there  is  a  lien  on  property  of  any  kind,  such  as  a 
mechanics*  or  an  employees'  lien  for  personal  services,  the 
statutes  which  provide  for  the  safeguarding  of  this  class  of 
claims  also  provide  a  method  of  collecting  them.  Common 
carriers  have  a  lien  for  the  freight  upon  goods  carried ;  ware- 
housemen upon  the  goods  stored,  for  storage  charges ;  tailors 
have  liens  on  the  suits  made  up  from  cloth  given  them ;  and 
carpenters  upon  the  finished  product  of  their  labor,  etc.    The 

575 


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DEBTS  AND  INTEREST 


ENFORCING  PAYMENT  OF   DEBTS 


577 


f' 
III  I 


wh 


fSi'^ 


statutes  bearing  upon  each  case  should  be  examined  and  the 
method  of  enforcement  strictly  followed,  keeping  in  mind 
that  the  lien  laws  of  each  state  vary  in  kind,  number,  and 
procedure. 

In  the  case  of  a  conditional  sale,  properly  registered,  the 
ownership  remains  in  the  seller  until  the  full  purchase  price 
has  been  paid,  or,  if  the  agreement  of  sale  stipulates  that  title 
should  pass  on  the  payment  of  a  smaller  amount,  until  that 
has  been  paid.  Where  the  purchaser  fails  to  make  the  agreed 
payments,  the  seller  has  to  reclaim  the  property.  If  it  is  not 
surrendered  peaceably,  he  may  have  to  resort  to  legal  pro- 
ceedings to  recover  possession.     ( See  Form  22. ) 

Note: 

I.  The  matter  of  giving  credit  and  avoiding  loss  is  one 
of  the  most  difficult  business  problems.  All  large 
houses  have  credit  managers  who  by  specializing 
become  very  skilful  in  judging  men. 

§  505.    Where  There  Is  No  Security  for  the  Debt 

If  a  debt  is  unsecured,  it  is  necessary  to  bring  suit  and  to 
get  a  judgment  against  the  debtor  before  the  court  will  grant 
an  execution,  i.e.,  an  enforcement  of  the  judgment.  An  execu- 
tion takes  the  form  of  an  attachment  and  a  sale  by  the  sheriff 
of  the  debtor's  property,  advertised  in  the  manner  required 
by  law.  Household  furniture  and  the  tools  used  in  following 
a  trade  are  generally  exempt  from  seizure.  The  articles  thus 
exempted  are  more  definitely  enumerated  by  the  statute  cover- 
ing this  matter  and  vary  in  each  state. 

An  execution  generally  holds  good  until  the  amount  for 
which  it  was  issued  has  been  wholly  satisfied.  It  can  be  en- 
forced only  against  property  within  the  jurisdiction  of  the 
court  granting  it,  and  if  the  fact  should  appear  that  there  is 
property  belonging  to  the  debtor  in  another  jurisdiction,  it  is 


necessary  to  file  a  transcript  of  the  judgment  there  and  to 
take  out  another  execution.  It  may  be  necessary  to  obtain 
a  new  judgment  for  property  outside  the  state.  In  such  case 
the  suit  would  be  on  the  judgment  and  not  on  the  original  debt. 

No  proceedings  for  the  collection  of  debts  are  satisfactory. 
If  they  are  harsh,  poor  people  are  oppressed;  if  lenient,  dis- 
honest people  defraud  those  who  trust  them. 

In  business  circles  good  credit  is  becoming  a  matter  of 
character  and  achievement,  and  a  day  may  come  when  the 
man  who  does  not  pay  his  debts  and  the  man  who  embezzles 
will  find  it  equally  impossible  to  do  business. 

§  506.    Attempts  to  Defraud  Creditor 

In  the  case  of  fraud,  the  law  generally  allows  execution 
against  the  person  of  the  debtor,  i.e.,  arrest  and  imprison- 
ment. If  there  is  reason  to  believe  that  the  debtor  intends 
to  escape  or  to  convey  his  property  out  of  the  jurisdiction  of 
the  court,  the  first  step  in  the  action  to  collect  the  debt  should 
be  an  application  for  an  order  of  arrest.  The  debtor  must 
then  give  bond  or  go  to  prison.  In  bringing  such  proceedings, 
a  reputable  attorney  should  be  consulted. 

If  at  any  time  during  the  suit  the  debtor  attempts  any 
fraudulent  disposition  of  his  property,  he  may  be  imprisoned, 
and  if  as  a  consequence  of  such  fraud  there  is  no  property 
to  sell,  he  may  be  kept  in  prison  until  he  pays  the  debt. 

Where  a  debtor  has  conveyed  or  assigned  property  with 
intent  to  defraud  any  of  his  creditors,  the  defrauded  creditor 
may  apply  to  the  court  to  set  aside  the  transfer.  Even  a  life 
insurance  policy  taken  out  for  a  larger  amount  than  the  cir- 
cumstances of  the  debtor  warranted  at  the  time,  or  for  the 
express  purpose  of  defrauding  his  creditors,  or  which  has  a 
cash  surrender  value  to  the  debtor,  may  be  used  to  satisfy 

claims. 

In  many  states  the  laws  against  fraudulent  debt  are  not 


578 


DEBTS  AND  INTEREST 


i 


SO  severe  and  are  difficult  to  enforce.  It  is  probable  that  more 
money  «  lost  by  fraudulent  debts  than  by  afl  the  forms  of 
outnght  theft  combined. 

Note: 

I.  Before  trusting  money  or  property  to  another,  be 
sure  that  he  is  trustworthy.  If  in  doubt,  decide 
whether  you  can  afford  to  lose  the  money.  If  you 
decide  that  you  can,  do  not  worry  about  it  later. 

§  507.    The  Modem  Tbeoiy  of  Credit 

In  business  credit-giving  is  not  a  matter  of  favor  but  of 
busmess  discretion.     In  the  larger  establishments  the  credit 
dqartment  k  presided  over  by  experts  who  investigate  those 
who  seek  credit  and,  after  ascertaining  what  character,  busi- 
ness ability,  and  available  assets  the  applicants  possess,  de- 
termuie  to  what  extent  it  is  prudent  to  give  diem  credit. 
The  result  of  this  procedure  is  that  in  each  line  of  business 
those  who  are  unreliable,  slack  in  business,  extravagant  in 
habits,  and  careless  about  obligations,  find  increased  difficulty 
m  obtammg  credit  and  are  ultimately  forced  out  of  business 
On  the  other  hand,  those  who  are  honest,   careful,  and 
methodical  in  their  business  dealings  get  the  credit  to  which 
they  are  entitled  and  their  good  name  becomes  more  valuable. 
Any  business  man,  whether  he  seeks  credit  or  gives  it, 
should  inform  himself  through  some  of  the  modem  works 
on  credit  and  collections  of  the  practice  in  regard  to  granting 
credits  and  making  coUections.    As  a  result  of  careful  man- 
agement the  losses  from  bad  debts  and  business  failures  tend 
to  become  less,  and  by  a  survival  of  tiie  fittest  the  modem 
business  house  in  its  practice  becomes  more  careful,  more 
economical  in  management,  more  practical  in  its  conduct,  and 
more  ethical  in  its  relations  to  its  customers,  its  employees, 
and  those  from  whom  it  buys. 


ENFORCING   PAYMENT  OF  DEBTS 


579 


When  a  business  house  finds  itself  in  difficulties,  the  credit 
men  representing  its  creditors  get  together,  and  if  on  careful 
examination  there  is  any  reasonable  chance  of  those  in  charge 
pulling  through,  the  creditors  usually  extend  credit  and 
prescribe  a  course  of  conduct  that  will  in  most  cases  restore 
prosperity.  If  instead,  they  find  hopeless  mismanagement, 
extravagance,  or  dishonesty,  they  decide  on  what  legal  steps 
are  to  be  taken  to  save  as  much  as  possible  for  all  the  creditors. 
This  result  is  usually  sought  through  bankruptcy  proceedings. 
In  consequence  the  subject  of  bankruptcy  has  much  importance 
in  modern  business  Ufe. 

Notes: 

1.  In  business  a  good  character  helps  the  debtor  obtain 

credit. 

2.  The  creditor  needs  to  be  a  good  judg«  of  character 

to  avoid  bad  debts. 

§  508.    Liens 

A  lien  is  a  legal  claim  or  hold  on  property  as  security 
for  a  debt  or  charge.  In  general  application,  the  term  "lien" 
embraces  all  cases  in  which  real  or  personal  property  is  charged 
vr'th  the  payment  of  a  debt.     The  most  common  forms  of 

lien  are  I 

I      Common  Law  Lien.    This  is  the  right  to  retain  the 

possession  of  personal  property  until  some  debt  secured  by 

or  due  on  such  property  shall  be  satisfied. 

2.  Statutory  Liens.  Those  liens  which  are  provided  for 
by  statute  in  contradistinction  to  those  created  at  common  law. 
These  liens  cover  cases  not  provided  for  by  common  law. 

3.  Equitable  Liens.  A  lien  upon  real  or  personal  prop- 
erty whether  or  not  in  the  actual  possession  of  the  lienor,  in 
form  which  courts  of  equity  alone  recognize. 

4.  General  Lien.     A  lien  upon  property  for  a  general 


s8o 


DEBTS  AND  INTEREST 


ENFORCING  PAYMENT  OF  DEBTS 


S8l 


(I 


I 


^m 


balance  due  from  the  owner.  Tliis  is  not  favored  and  can 
only  be  established  by  contract,  express  or  implied,  or  by 
custom  of  trade  or  of  the  parties. 

S-  Judgment  Lien.  A  lien  following  upon  a  judgment, 
governed  entirely  by  statute,  and  usually  dependent  upon  the 
iihng  of  the  judgment 

6.  Mechanics' Lien.  A  lien  upon  buildings  for  materials 
furnished  or  for  labor.  It  can  be  secured  by  mechanics  and 
material  men.    It  is  entirely  statutory. 

7.  Particular  Lien.  A  lien  upon  specific  propertv  for 
laLor  or  money  expended  on  that  property  alone. 

Originally,  liens  applied  only  to  chattels,  but  now  they  may 
be  enforced  in  equity  upon  both  real  and  personal  property, 
or  upon  money  in  the  hands  of  third  persons.  Any  property 
to  be  subject  to  a  lien  must  be  tangible. 

A  lien  may  be  waived  or  extinguished  by  the  voluntary 
parting  of  possession  by  the  lien-holder  or  by  a  sale  of  personal 
property  other  than  in  the  manner  prescribed  by  statute.  A 
lien  is  discharged  when  payment  of  the  debt  or  obligation 
which  it  secures  is  made.* 

§  509.    Attachment 

Attachment  is  a  legal  process  by  means  of  which  money  or 
property  and  goods  of  the  debtor  in  the  county  can  under 
certain  circumstances  be  seized  as  the  first  step  in  a  suit  to 
collect.  In  Massachusetts,  New  York,  Pennsylvania,  Indiana, 
and  Cahfornia,  any  suit  can  be  commenced  by  attachment 
In  most  of  the  states,  however,  it  is  merely  a  provisional 
remedy,  incident  to  an  action  commenced  at  or  before  the  time 
when  the  attachment  is  sued  out.  In  New  York  and  most 
of  the  other  states  it  is  only  allowed  in  cases  where  it  is 
necessary  to  prevent  sale,  removal,  or  other  special  circum- 
stances. 


_>  American  and  English  Encyc.  of  Law.  Vol.  14,  page  173a. 


The  New  York  Code  provides  that  a  warrant  of  attach- 
ment against  the  property  of  one  or  more  defendants  in  an 
action  may  be  granted  upon  the  application  of  the  plaintiff, 
where  the  action  is  to  recover  a  sum  of  money  only,  as  damages 

for: 

1.  Breach  of  contract,  express  or  implied  other  than  a 

contract  to  marry. 

2.  Wrongful  conversion  of  personal  property. 

3.  An  injury  to  person  or  to  property,  in  consequence 

of  negligence,  fraud,  or  other  wrongful  act. 

To  entitle  the  plaintiff  to  such  a  warrant  he  must  show 
by  affidavit,  to  the  satisfaction  of  the  judge  granting  the  same, 
that  there  are  special  reasons  why  such  a  process  should  issue 
to  save  the  plaintiff's  rights. 

§  510.    Execution 

After  trial,  if  judgment  Is  secured  by  the  creditor,  it  is 
usually  a  verdict  for  an  exact  sum  and  costs  of  the  action. 
To  collect  this,  execution  must  be  issued,  which  means  that 
a  court  officer,  a  constable,  sheriff,  or  marshal,  is  directed 
to  levy  on  property  of  the  debtor,  not  exempt  from  execution, 
and  publicly  to  sell  the  same,  and  after  paying  the  costs  to  turn 
the  proceeds  over  to  the  creditor  to  the  amount  of  his  claim. 
If  any  surplus  remained  it  would  be  paid  to  the  debtor. 

§511.    Garnishment 

"Garnishment  is  a  proceeding  in  the  nature  of  an  attach- 
ment or  execution  by  means  of  which  credits,  property  or 
effects  of  a  debtor  in  the  hands  of  a  third  person  may  be 
subjected  to  the  payment  of  the  claims  of  the  creditors  of 
such  debtor.  The  proceedings  are  generally  spoken  of  as  a 
mode  of  attachment  or  execution,  but  differ  therefrom  in  two 
important  particulars,  to  wit,  in  the  case  of  garnishment  no 


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ENFORCING  PAYMENT  OF  DEBTS 


583 


11 


actual  possession  of  the  property  in  the  hands  of  the  garnishee 
(third  party)  is  taken,  and  as  a  rule  no  specific  lien  acquired 
upon  the  property  or  credits  in  the  hands  of  the  garnishee."  « 
So,  for  example,  where  a  man  owes  another  money  and 
though  he  has  a  position  and  should  be  able  to  pay  he  does  not. 
an  order  may  be  obtained  from  the  court  by  his  creditor' 
which  will  give  the  latter  the  right  to  collect  a  portion  of 
that  debt  each  week  from  the  debtor's  employer  who,  of  course, 
subtracts  it  from  the  debtor's  salary.  This  continues  until  the 
sum  is  paid  in  full. 

Garnishment  may  be  collected  for  damages,  resulting  from 
a  breach  of  contract  if  they  have  been  reduced  to  a  certainty. 

Garnishment  is  known  in  some  of  the  states  as  the  "trustee 
process,"  "factorizing  process,"  and  "attachment  execution." 
It  is  strictly  a  legal  remedy,  although  in  a  few  states  it  par- 
takes of  an  equitable  remedy. 

A  person  to  be  charged  as  a  garnishee  must  have  actual 
control  and  possession  of  the  property  of  the  debtor  with 
which  he  is  sought  to  be  charged. 

A  garnishee  is  liable  only  for  the  amount  owing  by  the 
debtor  to  the  creditor  at  the  time  of  the  commencement  of 
the  action. 


1. 


3. 


Review  Questions 

How  should  property  be  sold  under  a  mortgage?     If  several 

parcels  of  land  are  included,  may  they  be  sold  together? 
How  are  laws  enforced?    In  case  of  a  conditional  sale,  where 

the  buyer  fails  to  pay  as  agreed,  what  can  be  done? 
How  is  an  unsecured  debt  collected?    How  does  an  execution 

operate?    What  personal  property  is  exempt  from  execution 

in  your  state? 
How  long  does  an  execution  hold  good  ?    What  could  be  done 

if  the  debtor  had  property  in  another  state? 


5.  When  the  claim  is  based  on  the  debtor's  fraud,  or  the  debtor 

tries  to  escape  or  to  remove  his  property  from  the  state,  what 
summary  proceeding  may  be  taken?  Can  a  man  be  im- 
prisoned for  debt? 

6.  If  a  debtor  transfers  his  property  to  his  wife,  can  the  creditor 

touch  it? 

7.  Why  is  credit  given  in  business?    What  is  credit?    How  may 

business  credit  be  secured? 

8.  What  motives  influence  credit  men  when  a  debtor's  business  is 

in  difficulties? 

9.  What  is  a  lien?     What  is  a  common  law  lien,  statutory  lien, 

equitable  lien,  general  lien,  judgment  lien,  mechanics'  lien? 
Is  a  mechanics'  lien  common  law  or  statutory?  How  can  a 
lien  be  waived? 

10.  What  is  an  attachment?    What  is  its  object? 

11.  What  is  a  judgment?     Who  levies  an  execution?     What  pro- 

cedure follows? 


'ao  eye,  1058. 


INTEREST 


I 


58s 


CHAPTER  LXXX 

INTEREST 

S  513.    Interest 

Interest  is  compensation  or  hire  for  the  use  of  money. 
It  has  been  contended  that  the  payment  of  interest  is  contrary 
to  the  principles  of  justice,  that  if  a  man  borrows  money  and 
returns  it  undiminished  in  volume  there  is  no  ethical  compul- 
^  for  hun  to  pay  more.    As  a  practical  matter,  it  has  always 
been  recognized  in  the  world  of  business  that  if  a  man  fore- 
goes the  use  of  his  own  money  and  lends  it  to  another,  it  is 
proper  that  he  be  recompensed.    This  recompense  would  vary 
in  accordance  with:  (i)  the  amount  involved,  (2)  the  period 
of  the  loan,  and  {3)  the  risk  of  loss.    When  the  great  govem- 
ments  borrow  money  in  time  of  peace,  there  is  supposed  to 
be  very  little  risk  and  the  rate  of  interest  is  very  low.    If 
on  the  other  hand,  a  man  without  any  other  means  desires  to 
borrow  money  to  start  in  business,  the  chances  would  be  that 
the  money  would  be  lost  and  the  creditor  would  feel  justified 
«i  asking  as  high  a  rate  of  interest  as  he  could  legally  secure. 
The  legal  rate  is  usually  6  per  cent.    When  no  agreement  is 
inade  as  to  interest,  the  legal  rate  governs.    In  most  parts  of 
the  country  parties  are  allowed  to  contract  for  higher  rates 
usuaUy  Umited  to  8  or  10  per  cent.    When  suit  is  brought  on 
a  liquidated  demand,  interest  is  claimed  from  the  date  when 
the  claim  accrued.    In  a  suit  for  damages  interest  does  not 
begin  till  judgment  is  entered. 

Interest  on  a  claim  is  generally  reckoned  from  the  date 
when  due,  or  if  it  is  a  running  account,  from  the  time  demand 

584 


is  made  for  payment  and  payment  is  refused.  Sometimes 
when  an  account  has  been  running,  an  average  due  date  for 
the  time  of  interest  will  be  allowed. 

§  513.    Discount 

Discount  is  interest  reserved  from  the  face  of  the  loan. 
When  banks  loan  money,  they  require  the  party  borrowing 
the  money  to  make  out  a  note  for  the  amount  payable  at  the 
expiration  of  the  loan.  Then  they  calculate  the  interest 
from  the  face  of  the  loan  and  subtract  it  from  the  amount 
they  pay  to  the  debtor.  This  is  charging  more  than  the 
nominal  interest  because  the  party  does  not  get  in  advance  the 
full  amount  on  which  he  pays  interest.  The  banks  are  allowed 
to  do  this.  A  national  bank  may  charge  on  loans  and  dis- 
counts any  rate  allowed  by  the  laws  of  the  state  in  which  the 
bank  is  situated,  and  if  no  rate  is  there  fixed,  the  bank  may 
charge  not  exceeding  7  per  cent. 

A  note  for  $1,000  payable  90  days  after  date,  discounted, 
would  yield  $985  to  the  borrower.  Therefore  he  has  paid 
in  advance  the  interest  on  $1,000  and  gets  the  use  of  only 
$985.  Usually  the  borrower  receives  credit  only  to  the  amount 
of  the  proceeds,  which  goes  to  his  account  to  be  drawn  on 
as  he  requires  it.  The  further  proceedings  relating  to  the 
transaction  have  been  considered  in  the  part  dealing  with 
negotiable  instruments.  The  discount  procedure  would  be  the 
same,  whether  the  instrument  discounted  were  a  note  of  the 
party,  a  note  in  which  he  was  payee,  or  a  draft  of  which  he 
was  the  owner. 

§514*    Usury 

Usury  and  interest  were  formerly  synon3rmous  in  meaning. 
All  interest  was  usury  and  usury  was  merely  a  term  expressing 
interest.  Now  in  law  it  means  an  illegal  rate  of  interest.  In 
each  state  of  the  Union  the  law  provides  for  a  certain  legal 


I 


SB6 


DEBTS  AND  INTEREST 


INTEREST 


587 


rate  of  interest  and  in  the  absence  of  any  specified  rate  this 
wiU  prevail.    In  some  states  it  is  permitted  to  make  a  specified 
contract  for  a  higher  rate  than  the  legal  one.    The  penalties 
for  violations  of  the  usury  laws  vary  in  every  state  of  the 
Union.    The  legal  rate  of  interest  fixed  in  most  states  is  6  per 
coit,  although  in  a  few  states  it  ranges  from  5  to  8  per  cent 
Where  mterest  is  provided  for  but  no  rate  has  been  fixed,  the 
law  will  presume  that  the  legal  rate  of  interest  was  intended 
Every  busmess  man  should  know  the  laws  in  regard  to  usury 
for  his  own  state.     In  some  states  it  is  provided  that  the 
excess  over  the  legal  rate  cannot  be  collected.    In  other  states 
It  IS  considered  an  illegal  contract  and  is  therefore  void  as  a 
whole  and  nothing  can  be  collected.    Section  95,  75  U   S 
Compiled  Statutes  says  that  usurious  interest  need  not  be  paid 
but  the  usurer  may  sue  for  the  principal.    Usurious  interest! 
If  paid,  can  be  sued  for  in  double. 

Pawnbrokers  are  allowed  to  charge  usurious  interest  This 
seems  unjust  as  they  are  amply  secured  and  their  patrons  are 
in  most  cases  poor  and  ignorant  people. 


interest  upon  the  actual  amount  due  for  the  actual  period  dur- 
ing which  interest  should  run."  ^ 

§  516.    Partial  Payments 

Where  there  is  a  note  and  the  debtor  has  from  time  to 
time  made  payments  but  does  not  settle  the  amount  in  full, 
when  the  time  comes  for  a  final  settlement  it  is  sometimes  a 
complicated  matter  to  ascertain  exactly  how  much  is  due.  The 
usual  rule  in  most  of  the  states  is  as  follows:  "Compute  in- 
terest on  the  principal  from  date  interest  begins  to  run  to 
the  date  of  first  partial  payment  and  add  to  principal,  then 
deduct  payment  from  that  aggregate,  but  if  the  payment  does 
not  amount  to  as  much  as  the  interest,  interest  is  to  be  com- 
puted on  the  principal  to  the  next  payment  or  payments,  which 
will  equal  or  exceed  the  interest  and  the  balance  is  then  to  be 
added  to  the  principal,  and  interest  thereon  added  and  pay- 
ments deducted  as  before."  * 


§515.    Compound  Interest 

Compound  interest  means  interest  on  interest  where  a  debt 
has  been  running.  Compound  interest  is  not  usury.  The  law 
does  not  favor  compound  interest,  but  will  allow  it  in  certain 
cases.  Where,  for  instance,  the  debtor,  not  being  able  to  meet 
interest  payments,  agrees  that  the  interest  may  be  added  to 
the  principal,  the  agreement  will  be  good.  In  some  states  it 
is  legal  to  agree  in  advance  that  if  interest  payments  are  not 
made  when  due,  the  amount  shall  be  added  to  the  principal 
Compound  interest  will  not  be  allowed  by  a  court  of  equity 
in  any  transaction  that  comes  before  it  for  decision. 

"Interest  is  generally  to  be  so  computed  as  to  avoid  the 
payment  of  compound  interest,  and  to  secure  calculation  of 


Review  Questions 

1.  What  is  interest?    What  is  discount? 

2.  When  does  the  balance  of  an  account  stated  be^in  to  draw 

interest  ? 
J.    What  is  legal  rate  in  your  state?    What  is  maximum  rate? 

4.  Define  usury  and  state  the  penalties  for  it  ? 

5.  To  what  extent  can  the  operation  of  the  usury  laws  be  avoided 

by  contract  in  your  state? 

6.  What  is  the  usual  legal  rate  of  interest  on  ordinary  loans  of 

money.     Are  bankers  empowered  to  take  a  higher  rate  on 
discounting  ordinary  paper? 

7.  On  what  loans  may  a  higher  rate  of  interest  than  6  per  cent 

be  taken? 

8.  What  is  compound  interest?    When  is  it  allowed? 


*  22  Cyc,  1562. 

'  Riney  v.  Hill,  14  Mo.  500. 


S88 
9- 

10. 

II. 


DEBTS  AND  INTEREST 

What  is  the  law  as  to  computation  of  interest  in  regard  to  time 
in  your  state? 

What  is  the  rule  for  calculating  interest  on  a  note  on  which 
partial  payments  have  been  made  from  time  to  time  ? 

What  is  the  general  rule  for  computing  interest  on  an  account 
on  which  payments  arc  made  from  time  to  time  when  no 
special  stipulation  has  been  expressed? 


PART  XV 
BANKRUPTCY 


CHAPTER  LXXXI 

ASSIGNMENT  FOR  THE  BENEFIT  OF  CREDITORS 

§  517.    Introductory 

When  a  man  makes  the  discovery  that  he  is  falling  behind, 
it  too  often  happens  that  he  loses  his  head  and  manages  his 
affairs  in  the  worst  possible  way.  A  man  who  is  having  diffi- 
culty in  meeting  his  engagements  should  be  most  careful  to 
pay  all  his  small  bills.  The  small  creditors  are  more  likely 
to  make  trouble  than  the  larger  ones  and  are  harder  to  make 
terms  with  than  the  men  with  big  claims.  The  fewer  claims 
there  are  to  be  dealt  with,  the  easier  it  is  to  get  time  and  to 
make  terms.  Rent,  salaries,  and  all  small  current  bills  should 
be  carefully  paid.  In  the  next  place,  the  larger  creditors  should 
be  treated  fairly  and  openly.  Ordinary  human  nature  post- 
pones, and  hopes  for  some  unexpected  good  fortune  to  come 
at  the  last  moment.  It  would  be  wiser  in  many  cases  to 
recognize  the  gravity  of  the  situation  betimes  and  to  post  the 
larger  creditors  and  to  act  on  their  advice.  The  credit  men 
of  reputable  houses  are  experts  in  straightening  out  involved 
businesses  and  are  much  more  likely  to  find  a  way  out  than 
the  man  or  men  immediately  concerned. 

If  in  such  a  case  there  are  not  a  multitude  of  indignant 
creditors  for  small  amounts,  the  larger  creditors  will  try  first 
to  help  the  debtor  pull  through,  and  if  that  is  not  possible, 
will  be  likely  to  agree  to  a  compromise  that  will  put  the 
insolvent  on  his  feet  again  without  the  delay,  loss,  and  prej- 
udicial publicity  of  going  through  bankruptcy.  If  there  are 
but  a  few  creditors,  they  may  agree  to  an  assignment  to 

591 


II 


592 


BANKRUPTCY 


1 


trustees  named  by  them  who  will  settle  up  the  affairs  with  least 
expense  and  delay. 

When  his  creditors  are  willing,  an  insolvent  man  may 
always  assign  his  property  to  someone  for  the  benefit  of  his 
creditors,  instead  of  going  into  bankruptcy.  The  proceedings 
necessary  for  an  assignment  of  this  nature  are  prescribed 
by  the  state  laws.  The  statutes  of  the  state  where  the  insolvent 
resided  would  have  to  be  consulted,  and  the  prescribed  pro- 
cedure closely  followed. 

"Voluntary  assignments  for  the  benefit  of  creditors  are 
transfers  without  compulsion  of  law,  by  debtors,  of  some  or 
all  of  their  property  to  an  assignee,  or  assignees,  in  trust, 
to  apply  the  same,  or  the  proceeds  tiiereof,  to  the  payment 
of  some  or  all  of  their  debts,  and  to  return  the  surplus,  if  any, 
to  the  debtor."  * 

A  general  assignment  is  the  transfer  of  all  or  substantially 
all  of  the  assignor's  property  to  an  assignee ;  whereas  a  partial 
assignment  conveys  only  a  portion  of  the  debtor's  property. 

A  special  assignment  is  a  transfer  of  some  specific  article, 
directly,  to  some  favored  creditor  for  his  exclusive  benefit. 

§518.    Rights  of  Debtors 

Generally,  any  debtor  has  a  right  to  make  an  assignment 
of  his  property.  The  fact  that  a  debtor  is  insolvent  will  not 
be  a  bar  unless  there  is  a  statutory  provision  regarding  this. 
Banks,  partnerships,  corporations,  etc.,  can  with  certain  quali- 
fications make  assignments.  The  practical  bar  in  most  cases 
is  the  fact  that  making  an  assignment  is  an  act  of  bankruptcy 
and  some  few  dissatisfied  creditors  can  at  once  institute  bank- 
ruptcy proceedings. 

In  the  jurisdictions  where  a  married  woman  has  the  same 
individual  rights  as  her  husband,  she  may  make  an  assignment 
and  with  her  husband's  consent  may  assign  the  community 

>  Btmill  on  AMignineats.  Sec  1. 


ASSIGNMENT  FOR  BENEFIT  OF  CREDITORS  593 

property  belonging  to  them.  A  husband  may,  however,  assign 
the  community  property  without  his  wife's  being  a  party  to 
the  conveyance.  When  an  assignment  is  made  by  an  infant 
or  an  insane  person  it  is  voidable  but  not  void.  A  joint  debtor 
cannot  assign  joint  property  for  the  benefit  of  joint  creditors 
unless  with  the  consent  of  the  other  joint  debtor. 

§  519.    Rights  of  Creditors 

In  order  to  be  a  valid  assignment  there  must  be  a  com- 
plete transfer  of  the  title  to  the  property  to  be  assigned.  There 
must  be  no  right  of  redemption  in  the  debtor.  A  delivery  of 
the  property  in  some  manner  is  also  a  necessity  for  a  valid 
assignment.  In  real  estate  a  title  passes  to  the  assignee  only 
upon  delivery  of  the  deed. 

In  some  states  the  assent  of  the  creditors  to  an  assignment 
acts  as  a  sufficient  consideration  for  such  a  transaction,  but 
where  there  is  no  consent  there  is  no  consideration  so  far  as 
the  creditors  are  concerned.  In  that  case  the  property  assigned 
may  be  seized  on  a  legal  process  by  any  creditor  who  has  not 
given  his  consent,  or  when  such  consent  has  not  been  given 
until  after  the  seizure. 

§  sac.    Void  Assignments 

There  must  be  no  attempt  by  the  debtor  to  force  the  con- 
sent of  the  creditors  to  an  assignment,  and  any  assignment 
so  made  may  be  set  aside  as  void  in  attempting  a  compromise 
or  a  composition.  Likewise  an  assignment  made  by  a  solvent 
debtor  for  the  purpose  of  extending  time  is  void.  An  assign- 
ment, however,  will  not  be  void  where  the  debtor  was  trying 
to  save  the  property  from  an  execution  or  attachment. 

No  assignment,  the  terms  of  which  will  hinder  and  delay 
the  creditors  beyond  the  time  that  is  reasonably  necessary  to 
carry  out  its  purpose,  is  valid.     An  assignment  is  not  valid 


i 


594 


BANKRUPTCY 


i( 


which  gives  the  assignee  the  power  to  decide  what  debts  shall 
be  paid  or  which  gives  him  power  to  prefer  certain  creditors. 

§531.    Rights  and  Duties  of  an  Assignee 

An  assignee  should  be  properly  authorized  to  pay  claims 
in  such  order  and  priority  as  they  are  entitled  to  be  paid  by 
law.  An  assignee  will  not  be  responsible  for  the  neglect  or 
default  of  his  agents,  provided  he  used  reasonable  care  and 
prudence  in  selecting  them,  and  in  holding  them  to  strict 
responsibility  for  their  acts,  and  where  a  covenant  has  been 
made  on  the  part  of  the  assignee  to  act  justly  and  faithfully 
in  the  execution  of  his  duty.  An  assignee  may  by  the  terms 
of  the  assignment  be  required  to  give  an  accounting  from  time 
to  time.  He  may  also  be  given  the  power  to  hire  such  clerks, 
agents,  etc.,  as  may  be  necessary  for  him  to  carry  on  the  work 
of  the  assignment  and  he  may  pay  for  such  services  from  the 
property  turned  over  to  him  for  assignment. 

If  an  assignment  demands  that  creditors  file  claims  with 
the  assignee  before  payment  this  must  be  done,  and  it  may 
also  require  the  claims  to  be  presented  within  a  certain  time. 
It  may  also  provide  that  such  claims  must  be  proved.  An 
assignment,  however,  cannot  provide  that  creditors  shall  not 
be  paid  until  an  accounting  between  them  and  the  assignor 
has  been  approved  and  the  exact  amount  of  the  claim  has  been 
agreed  upon. 

A  reasonable  recompense  for  the  assignee  may  be  provided 
by  the  terms  of  an  assignment  for  his  services  in  carrying  out 
the  assignment.  If  an  exact  and  certain  sum  is  fixed  by 
statute,  this  sum  will  be  considered  to  be  the  recompense  pro- 
vided for  in  the  assignment.  If,  however,  the  assignment 
fixes  exactly  the  sum  to  be  paid  the  assignee  it  will  not  be 
void,  because  the  court  may  reduce  the  amount  to  that  fixed 
in  the  statutes. 

An  assignee  must  see  to  the  payment  of  all  expenses  out 


ASSIGNMENT  FOR  BENEFIT  OF  CREDITORS  595 

of  the  assigned  property  for  preparing  assignment,  payment 
of  any  suits  arising  from  the  assigning  of  an  estate,  attorneys' 
fees,  etc.  He  must  not  pay  any  expenses  of  the  debtor  in 
defending  suits  brought  by  creditors  against  him  or  for  obtain- 
ing  the  benefit  of  bankruptcy  or  insolvency  laws. 

§  $22.    Form  of  the  Assignment 

An  assignment  of  real  property  comes  under  the  provisions 
oi  the  Statute  of  Frauds  and  must  therefore  be  in  writing, 
even  though  it  also  includes  personal  property.  The  form  of 
an  assignment  has  little  effect  on  its  validity.  Where  a  debtor 
executed  an  instrument,  if  he  does  so  with  the  intention  that 
it  shall  be  an  assignment,  it  is  good  no  matter  what  its  form 
or  what  it  is  called.  Following  this  rule,  chattel  mortgages, 
bills  of  sale,  leases,  powers  of  attorney,  real  estate  mortgages, 
etc.,  have  been  held  to  operate  as  assignments  for  the  benefit 

of  creditors. 

It  is  usually  a  statutory  provision  that  the  name  and  ad- 
dress of  the  assignor  and  the  nature  of  his  business  must  be 
given  in  the  assignment.  If,  however,  the  assignment  fails 
to  state  some  of  these  provisions  but  gives  the  residence  of 
the  assignor  so  that  he  may  be  identified,  it  will  be  valid. 

The  assignee  must,  with  reasonable  certainty,  be  designated 
in  an  assignment  and  there  must  also  be  a  reasonable  certainty 
as  to  the  articles  of  property  to  be  conveyed.  There  need  be 
no  valuation  of  such  articles  given.  The  name  and  addresses 
of  the  creditor,  and  amounts,  date,  and  nature  of  the  debt, 
are  all  that  need  to  be  stated  on  the  list  of  liabilities.  One 
seal  is  sufficient  for  an  assignment  where  it  is  required  to  be 
under  seal  and  is  signed  in  the  name  of  a  firm. 

§523.    Revocation  of  Assignment 

"An  assignment  before  delivery  to  the  creditors  may  be 
revoked,  but  an  assignment  which  has  been  delivered  cannot 


S96 


BANKRUPTCY 


i 


be  revoked  without  the  consent  of  both  the  assignee  and  the 
creditors  who  have  affirmed  the  trust  by  filing  their  bill  to 
enforce  it,  or  after  the  creditors  have  been  notified  and  have 
manifested  their  consent,  or  after  the  rights  of  creditors  have 
otherwise  attached  thereunder."  " 

Where  an  assignment  gives  creditors  a  certain  time  for 
consideration  and  acceptance,  the  assignor  may  not  revoke  the 
assignment  before  the  time  allowed  has  expired.  An  assign- 
ment is  not  revoked  by  death  or  disability  of  an  assignee 
or  by  the  death  of  the  assignor  or  the  resignation  of  the 
assignee.  A  trust  will  always  remain  whether  there  is  an 
assignee  or  not,  and  in  such  a  case  an  assignee  may  be  appointed 
to  execute  the  assignment  by  a  court  of  equity. 

§  524*    Insolvency 

Insolvency  is  the  state  of  a  person  who  cannot  pay  his 
debts  as  they  mature.  This  is  the  real  point  of  insolvency, 
for  though  a  debtor's  estate  may  amount  to  much  more  than 
his  debts,  yet  if  he  has  not  money  enough  on  hand  to  pay 
as  the  debts  come  due,  he  is  practically  and  legally  in- 
solvent. 

In  insolvency  as  opposed  to  bankruptcy,  although  the 
debtor's  property  is  taken  and  divided  among  his  creditors 
he  still  remains  liable  for  the  payment  of  any  unsatisfied 
balance  remaining  due.  Apart  from  this  fact,  insolvency  is 
practically  the  same  in  procedure  and  condition  as  bankruptcy. 
If  an  insolvent  business  can  scrape  together  enough  money 
to  meet  bills  as  they  come  due,  it  can  go  on  indefinitely  and 
none  of  its  creditors  can  institute  legal  proceedings.  It  would 
be  possible  for  a  skilful  business  man  to  start  a  business  on 
borrowed  capital,  in  which  case  it  would  be  insolvent  from 
the  start.  If  his  borrowed  money  did  not  come  due  for  some 
time,  he  meanwhile  could  do  business  and  make  money  and 

•  Corpus  Jttn%  Voi  V,  pi|e  1140. 


ASSIGNMENT  FOR  BENEFIT  OF  CREDITORS  597 

when  his  loans  came  due,  pay  part  and  renew  the  balance  until 
he  succeeded  in  accumulating  assets  in  excess  of  his  indebted- 
ness and  making  the  business  solvent. 


I. 
2. 

3- 
4. 

5 


Review  Questions 

What  are  the  powers  of  an  assignee?    How  may  he  resign? 

What  is  a  general  assignment? 

When  may  it  be  set  aside? 

What  compensation  is  allowed  an  assignee? 

What  are  preferences  in  an  assignment? 

6.  What  is  an  assignee's  duty  as  to  accounting? 

7.  How  must  an  assignee  qualify  ? 

8.  What  is  a  voluntary  assignment  for  benefit  of  creditors? 

9.  Where  a  debtor  refuses  to  make  an  assignment  for  the  benefit 

of  his  creditors,  have  the  creditors  any  means  of  forcing  him 

into  liquidation? 
Must  an  assignee  perform  assignor's  contract  to  deliver  goods? 

If  assignee  has  accepted  payment  on  account? 
In  an  assignment  for  benefit  of  creditors,  what  is  the  position 

of  the  assignee,  representing  such  creditors,  as  to  the  property 

of  the  estate? 
May  one  partner  make  an  assignment  for  the  benefit  of  the 

firm's  creditors? 

13.  What  is  the  general  personal  liability  of  an  assignee  for  damages 

resulting  from  his  acts  or  omissions? 

14.  If  an  assignee  before  distribution  has  notice  of  a  claim,  but 

the  creditor  has  failed  to  put  in  proof  of  claim,  though  notified 
to  do  so,  may  the  assignee  distribute  the  estate  without 
regard  to  the  claim  ? 

15.  What  is  the  difference  between  an  assignee  and  a  receiver? 

16.  Under  what  conditions  will  an  assignment  for  the  benefit  of 

creditors  be  set  aside? 


ID. 


II. 


12. 


BANKRUPTCY  PROCEEDINGS 


590 


il 


I 


I 


CHAPTER  LXXXII 

BANKRUPTCY  PROCEEDINGS 

§525.    Receivership 

There  are  two  kinds  of  proceedings  by  which  creditors  can 
force  a  closing  out  of  the  business  of  a  person  who  is  insolvent 
and  who  has  committed  an  act  of  bankruptcy.  The  first  is 
to  bring  a  suit  in  equity  to  have  a  receiver  appointed,  who 
then  takes  charge  of  the  business,  sells  the  property,  and  pays 
off  the  claims  under  the  direction  of  the  court. 

The  difficulty  with  the  suit  in  equity  is,  that  if  any  of  the 
other  creditors  prefer  to  start  proceedings  in  bankruptcy,  the 
equity  proceeding  fails,  and  all  must  come  in  under  the  bank- 
ruptcy proceeding. 

One  of  the  "acts  of  bankruptcy"  is  that  the  debtor  "being 
insolvent,  applied  for  a  receiver  or  trustee  for  his  property, 
or  because  of  insolvency  a  receiver  or  trustee  has  been  put 
in  charge  of  his  property." 

For  the  purposes  of  the  bankruptcy  law  a  person  is  deemed 
insolvent  whenever  the  aggregate  of  his  property  (excluding 
any  that  he  has  concealed  or  disposed  of  to  defraud  his 
creditors)  shall  not  at  a  fair  valuation,  be  sufficient  in  amount 
to  pay  his  debts. 

§  526.    Bankruptcy 

The  second  method  is  to  go  into  the  federal  court  and  to 
bring  bankruptcy  proceedings.  All  bankruptcy  proceedings 
must  be  brought  in  the  United  States  court.  No  state  court 
has  jurisdiction  in  bankruptcy. 

Bankruptcy  is  a  more  serious  matter  than  insolvency  and  is 

59S 


usually  fatal  to  a  business.  Bankruptcy  means  that  a  man 
or  a  business  has  been  adjudged  by  a  court  to  be  a  bankrupt 
and  that  control  of  the  business  has  been  put  into  the  hands 
of  a  trustee  or  receiver  appointed  by  the  court,  to  make  such 
disposition  of  it  as  may  be  for  the  best  interests  of  the 
creditors.  A  business  is  usually  insolvent  when  it  goes  into 
bankruptcy,  but  it  would  be  easy  to  mismanage  a  solvent  busi- 
ness in  such  a  way  that  it  would  become  bankrupt  without 

losing  its  solvency. 

The  bankruptcy  laws  are  enactments  of  Congress  designed 
to  afford  a  means  of  distributing  fairly  among  creditors  the 
assets  of  a  failing  business.  Before  these  were  adopted  the 
law:  in  each  state  on  the  collection  of  debts  differed,  and  when 
a  business  house  failed  there  was  strenuous  competition  among 
its  creditors  to  see  who  could  save  himself,  the  result  being 
much  fraud  and  unfairness.  Now,  all  of  the  state  procedure 
has  been  practically  superseded  by  the  national  laws  admin- 
istered by  the  federal  courts,  and  the  result  is  better  for  both 
creditors  and  debtors. 

The  great  advantage  to  the  debtor  is  that  if  he  has  been 
only  unfortunate  and  not  fraudulent,  he  may  after  the  settle- 
ment of  his  affairs  obtain  a  discharge  from  all  his  past  debts 
and  start  afresh  to  build  up  a  new  credit,  with  the  assurance 
that  when  he  gets  a  little  money  it  will  not  at  once  be  taken 
from  him  on  some  old  claim. 

The  advantage  to  the  creditors  is  that  all  fare  alike,  and 
no  one  is  preferred  in  his  claims.  The  proceedings  also  give 
pause  and  opportunity  to  make  a  compromise  to  the  advantage 
of  all  parties. 


Note: 
I. 


An  honest  debtor  who  deals  fairly  with  his  creditors, 
can  usually  make  a  settlement  with  his  creditors 
without  bankruptcy  proceedings. 


I  i 


6oo 


BANKRUPTCY 


BANKRUPTCY  PROCEEDINGS 


6oz 


I 


§  537.    Voluntary  Bankruptcy 

Any  person  may  file  a  bankruptcy  petition  on  his  own 
initiative  asking  the  court  to  adjudge  him  a  bankrupt.  It  is 
immaterial  how  small  the  amount  the  person  may  owe  when 
he  makes  his  appHcation.  The  expense  of  the  proceedings 
would,  however,  be  an  effectual  bar  to  small  debtors,  and  it  is 
not  usual  for  anyone  to  make  voluntary  application  unless 
he  is  insolvent  and  is  being  pressed  by  creditors.  Under  such 
circumstances,  it  is  sometimes  better  for  a  person,  when  he 
can  see  no  other  way  out,  to  anticipate  and  by  so  doing  to 
avoid  a  hopeless  struggle  against  the  inevitable.  He  may 
settle  with  his  creditors  as  fairly  as  possible  before  it  is  too 
late  and  endeavor  to  get  a  fresh  start  in  life,  profiting  by  his 
experiences. 

In  order  to  go  into  voluntary  bankruptcy,  the  debtor  files 
a  petition  in  the  federal  court  for  his  district,  stating  the 
number  and  amount  of  his  debts  and  the  amount  of  his 
property.  The  creditors  are  then  served  with  notice  and  with 
copies  of  the  petition,  and  the  further  proceedings  are  the 
same  as  in  cases  of  involuntary  bankruptcy. 

A  partnership  may  be  a  voluntary  bankrupt  as  may  a 
married  woman  owning  property,  and  likewise  a  minor.  If 
an  alien  has  property  within  a  court's  jurisdiction  he  may 
become  a  voluntary  bankrupt,  the  requirements  of  residence, 
place  of  business  and  domicile  being  waived  by  the  provisions 
of  the  Bankruptcy  Act.  Any  corporation,  except  a  municipal, 
railroad,  insurance,  or  banking  corporation,  may  become  bank- 
rupt. 

Instead  of  going  into  bankruptcy  a  debtor  may  make  an 
assignment  for  the  benefit  of  creditors  first.  The  practical 
difficulty  here  is  that  any  of  his  creditors  may  commence  an 
action  of  bankruptcy  if  not  satisfied  with  the  assignment,  and 
the  whole  matter  will  then  have  to  be  settled  in  a  bankruptcy 
court 


§528.    Involuntary  Bankruptcy 

A  person  may  be  adjudged  an  involuntary  bankrupt  when 
he  owes  not  less  than  $1,000  and  has  committed  an  act  of 
bankruptcy.    The  following  are  the  legal  acts  of  bankruptcy: 

1.  To  convey,  transfer,  conceal,  or  remove,  or  to  per- 

mit to  be  concealed  ^r  removed,  any  part  of  his 
property  with  intent  to  hinder,  delay,  or  defraud 
his  creditors  or  any  of  them. 

2.  To  transfer  while  insolvent  any  portion  of  his  prop- 

erty to  one  or  more  of  his  creditors  with  intent 
to  prefer  such  creditors  over  his  other  creditors. 

3.  To  suffer  or  to  permit,  while  insolvent,  any  creditor 

to  obtain  a  preference  through  legal  proceedings, 
and  not  have  vacated  or  discharged  such  prefer- 
ence at  least  five  days  before  a  sale  or  final  disposi- 
tion of  any  property  affected  by  such  preference. 

4.  To  make  a  general  assignment  for  the  benefit  of  his 

creditors,  or  being  insolvent  to  apply  for  a  re- 
ceiver or  a  trustee  for  his  property,  or  to  have  had 
a  receiver  or  a  trustee  put  in  charge  of  his  prop- 
erty because  of  insolvency. 

5.  To  have  admitted  in  writing  his  inability  to  pay  his 

debts  and  his  willingness  to  be  adjudged  a  bank- 
rupt on  that  ground. 

The  person  who  has  committed  any  such  act  of  bankruptcy 
is  liable  to  have  a  petition  filed  against  him  at  any  time  within 
four  months  thereafter,  asking  that  he  be  adjudged  a  bank- 
rupt. 

§  529.    Persons  Who  May  Bring  Bankruptcy  Proceedings 

Bankruptcy  proceedings  may  be  brought  by  any  one  or 
more  creditors  to  whom  the  alleged  bankrupt  owes  not  less 


ii< 


!« 


6oa 


BANKRUPTCY 


BANKRUPTCY  PROCEEDINGS 


603 


than  $500,  if  the  total  number  of  creditors  is  less  than  twelve. 
If  there  are  twelve  or  more  creditors,  three  or  more  must  join 
in  bringing  the  proceedings  and  their  claims  must  aggregate 
more  than  $500. 

§  530-    Persons  Who  May  Become  Involuntary  Bankrupts 

Bankruptcy  proceeding!  may  be  brought  against  any 
natural  person,  except  a  wage-earner  or  a  person  engaged 
chiefly  in  farming,  and  against  any  unincorporated  company 
and  any  corporation  owing  debts  to  the  amount  of  $1,000 
or  oyer,  except  a  municipal,  a  railroad,  an  insurance,  or  a 
banking  corporation.  A  municipal  corporation,  a  railroad,  an 
insurance  company,  or  a  bank  cannot  be  thrown  into  bank- 
ruptcy, for  reasons  of  public  policy.  In  event  of  any  of  these 
institutions  becoming  insolvent,  creditors  can  apply  to  a  court 
of  equity  for  the  appointment  of  a  receiver  to  take  charge 
of  the  assets  and  any  business  on  behalf  of  the  creditors. 


Review  Questions 

I.  When  is  a  person  insolvent?  What  two  proceedings  are  open 
to  creditors  in  such  case?    Which  is  usual?    Why? 

a.  What  is  bankruptcy ?  What  is  the  result  of  bankruptcy?  What 
are  the  bankruptcy  laws?  What  courts  administer  the  bank- 
ruptcy laws?  What  advantage  are  these  to  the  debtor?  To 
his  creditors  ? 

3.  What  is  voluntary  bankruptcy?    What  is  the  procedure?    May 

a  partnership  be  a  voluntary  bankrupt  ?  A  corporation  ?  An 
alien?  A  minor?  Why  is  voluntary  bankruptcy  usually  chosen 
instead  of  an  assignment? 

4.  What  is  involuntary  bankruptcy  ?    How  much  must  an  involuntary 

bankrupt  owe?  What  are  the  five  legal  acts  of  bankruptcy? 
How  long  after  such  an  act  may  proceedings  in  bankruptcy 
be  brought? 


5  Who  may  institute  bankruptcy  proceedings?     How  many  must 

join?    How  much  must  the  bankrupt  owe  them? 

6  Against  whom  and  what  may  bankruptcy  proceedings  be  brought? 

What  persons  are  excepted  ?    What  corporations  are  excepted  ? 
What  can  be  done  in  case  of  the  insolvency  of  a  corporation? 


BANKRUPTCY  PROCEEDINGS 


60s 


II 


CHAPTER  LXXXIII 

BANKRUPTCY  PROCEEDINGS  (Continued) 

§531-    How  Bankruptcy  Proceedings  Arc  Instituted 

In  bringing  bankruptcy  proceedings,  the  creditor  or  the 
creditors  (as  the  case  may  be)  file  a  petition  in  the  federal 
court  located  m  the  judicial  district  where  the  bankrupt  re- 
sides or  has  his  place  of  business,  or  in  a  district  where  any 
property  belonging  to  the  bankrupt  is  located.  A  copy  must 
be  served  on  the  bankrupt. 

The  petition  usually  asks  for  the  appointment  of  a  re- 
ceiver to  protect  the  property  until  a  trustee  can  be  elected. 
The  receiver  is  to  be  appointed  by  the  court  and  is  to  be  given 
charge  of  the  bankrupt's  property  until  the  first  meeting  of 
creditors  is  called. 

If  the  bankrupt  defends  the  proceeding,  it  will  be  necessary 
to  have  a  jury  trial  before  the  court  can  pronounce  him  a 
bankrupt.  Proceedings  in  bankruptcy  are  usually  conducted 
before  a  referee  in  bankruptcy  appointed  by  (he  court.  Usually 
such  suits  are  not  defended.  After  the  expiration  of  the 
twenty  days  which  the  bankrupt  is  given  in  which  to  make  his 
reply,  the  court  enters  a  decree  adjudging  him  a  bankrupt, 
and  appointing  a  receiver  if  a  receiver  is  necessary.  This 
decree  is  called  an  adjudication  in  bankruptcy.  If  the  in- 
solvency  and  act  of  bankruptcy  of  the  alleged  bankrupt  are  not 
shown,  the  petition  is  dismissed. 

§533.    The  Referee 

The  referee  in  any  judicial  proceeding  is  an  officer  ap- 
pointed by  the  court  to  investigate  and  report  a  decision  as 

604 


to  some  feature  of  a  matter  in  suit.  An  accounting  is  usually 
conducted  by  a  referee.  In  bankruptcy  referees  are  appointed 
for  two  years,  and  each  county  should  have  one  resident 
referee.  Referees  should  be  competent  and  not  related  in 
any  way  to  the  judges  of  the  federal  courts  in  the  districts 
in  which  they  reside  and  are  sworn  in  as  referees. 

The  duties  of  referees  are  to  consider  all  petitions  that 
are  referred  to  them  by  the  clerks  of  the  courts  and  decide 
whether  they  should  be  granted  or  dismissed;  to  administer 
oaths  to  witnesses ;  and  to  demand  the  production  of  documents 
required  in  cases  before  them.    Also  they  have  judicial  power 
in  taking  possession  of  the  bankrupt's  property  when  the 
United  States  judge  is  sick,  absent,  or  unable  to  act.    Generally 
they  are  authorized  to  act  judicially  in  all  such  matters  as 
arise  in  the  causes  before  them,  except  as  to  compositions 
and  discharges.    A  referee  should  be  skilled  in  accounting  and 
in  law,  but  he  must  not  be  interested  in  the  cases  before  him, 
or  practice  as  a  lawyer  in  bankruptcy  proceedings,  or  purchase 
any  property  of  a  bankrupt.     He  is  paid  by  fees  and  costs 
attached  to  the  different  steps  and  proceedings  in  each  case. 

§  533.    Procedure 

The  bankrupt  is  then  required  to  file  a  sworn  schedule 
of  all  his  property  showing  location  and  value,  and  a  list  of 
all  the  claims  against  him,  giving  names,  addresses,  and 
amounts  due  each.  This  schedule  is  filed  in  triplicate,  one  for 
the  clerk,  one  for  the  referee,  and  one  for  the  trustee.  The 
court  may  disallow  any  claims  which  it  believes  to  be  un- 
founded. 

A  meeting  of  all  creditors  whose  claims  have  been  allowed 
is  then  called,  and  they  elect  a  trustee  to  take  charge  of  the 
property.  The  trustee  must  be  elected  by  a  majority  of  the 
creditors  as  to  both  number  and  amount.  That  is,  he  must 
be  chosen  by  a  majority  of  all  the  creditors  whose  claims  have 


6o6 


BANKRUPTCY 


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607 


been  allowed,  and  by  those  holding  a  majority  in  amount  of 
the  claims. 

Creditors  who  have  some  security  for  their  claims  are  not 
allowed  to  come  in  to  vote  on  the  bankruptcy  proceedings,  so 
far  as  those  claims  are  concerned,  unless  the  security  is  not 
large  enough  to  cover  them.  In  this  latter  case  they  may  vote 
on  the  amount  of  the  claim  over  and  above  the  value  of  the 
•ccurity,  but  not  on  the  full  claim. 

The  creditors  may  require  the  bankrupt  to  submit  to  an  ex- 
amination as  to  his  property  and  any  other  matters  pertinent 
to  the  bankruptcy  proceedings. 

S  534-    Creditors 

As  soon  as  the  trustee  has  been  elected,  the  creditors  should 
proceed  to  file  their  claims  with  him.  The  proof  of  a  claim 
consists  of  an  affidavit  by  the  creditor  stating  the  nature  and 
the  amount  of  the  claim,  that  it  is  due  and  owing,  and  what 
security,  if  any,  he  has  for  it.  If  it  consists  of  a  promissory 
note,  or  a  written  instrument,  he  must  file  the  instrument  with 
the  affidavit. 

Qaims  may  be  filed  at  any  time  within  one  year  after  the 
adjudication.  In  a  litigated  claim,  if  final  judgment  is  rendered 
within  30  days  before  or  after  such  expiration  of  one  year, 
then  claim  may  be  filed  60  days  after  such  judgment.  If  a 
creditor  has  secured  a  judgment  more  than  four  months  before 
the  petition  was  filed,  he  will  retain  whatever  lien  on  real 
estate  the  state  allows  him.  If  the  judgment  came  within  the 
four  months'  period  it  wUl  give  the  creditor  no  advantage. 

The  bankruptcy  proceedings  are  carried  through  only  in 
case  the  debtor  and  his  creditors  can  come  to  no  compromise. 
Very  frequently  the  debtor  offers  to  compromise  for  so  many 
cents  on  the  dollar,  and  if  this  is  a  fair  offer  it  is  usually  better 
to  take  it  than  go  through  with  the  long  and  costly  procedure 
in  bankruptcy. 


Any  creditor  who  thinks  that  the  bankrupt  is  not  offering 
enough  may  offer  to  take  over  the  stock  himself  and  to  pay 
the  other  creditors  a  higher  dividend.  This  usually  brings  a 
higher  offer  from  the  bankrupt  if  he  is  trying  to  defraud  his 
creditors.  The  creditor  making  the  offer  must  also  pay  the 
expenses  of  the  proceeding  up  to  the  time  the  compromise  is 

made. 

If  there  has  been  any  fraud  in  bringing  the  proceedmgs,  or 
in  concealing  property  which  ought  to  have  been  given  up  for 
the  benefit  of  creditors,  any  of  the  defrauded  creditors  may 
come  in  within  one  year  after  a  discharge  has  been  granted 
and  have  it  revoked. 

Note: 

I.  It  is  generally  better  to  compromise  instead  of  con- 
tinuing a  bankruptcy  proceeding  if  the  offer  is 
at  all  a  fair  one.  The  creditors  practically  never 
receive  a  larger  proportion  of  their  claims  by  de- 
lay ;  usually,  because  of  the  heavy  expenses,  they 
receive  much  less  than  if  they  had  settled  the  mat- 
ter in  the  first  place. 

§  535.    Rights  and  Duties  of  Receiver 

In  bankruptcy  proceedings  when  it  is  absolutely  necessary 
to  prevent  loss  a  receiver  is  appointed  temporarily  to  preserve 
the  property  until  a  trustee  can  be  elected  by  the  creditors. 
He  does  not  conduct  the  business  unless  so  directed,  but 
merely  takes  care  of  the  goods,  pays  taxes  and  other  dues, 
and  hires  a  caretaker,  if  necessary,  to  look  after  the  premises 
during  the  interim  between  the  commencement  of  the  action 
and  the  election  of  the  trustee.  If  there  are  any  goods  in 
stock  which  are  of  a  perishable  nature  or  would  soon  go  out 
of  style  and  become  unsalable,  the  receiver  may,  with  the 
court's  permission,  sell  these  and  deposit  the  money  realized 


6o8 


BANKRUPTCY 


BANKRUPTCY  PROCEEDINGS 


609 


in  a  bank  to  await  the  election  of  a  trustee.    It  is  the  receiver's 
duty  to  apply  to  the  court  for  such  permission. 

The  receiver  is  appointed  by  the  court  and  must  give  a 
bond  for  the  faithful  performance  of  his  duties.  He  is  en- 
toUrf  to  fees  based  on  a  percentage  of  the  amount  of  property 

§536-    Rights  and  Duties  of  Trustee 

The  trustee  is  elected  by  the  creditors  to  take  over  the 
bankrupt  s  property,  to  reduce  it  to  cash,  to  pay  off  all  charges 
and  then  to  distribute  the  remainder  among  the  creditors  as 
provided  by  law.  The  trustee  may  be  a  person  or  a  corporation 
authorized  to  act  in  that  capacity  and  with  an  office  in  the 
judicial  district. 

pe  trustee  must  give  a  bond,  the  amount  of  which  is  fi.xed 
by  the  creditors  at  their  meeting,  or  if  they  fail  to  do  so  by 
aie  court.  The  creditors  may  at  any  time  require  that  this 
bond  be  increased.  The  bond  must  have  two  sureties  The 
trustee  is  responsible  only  for  his  own  misdeeds,  not  for  any- 
thing which  the  bankrupt  does. 

The  trustee's  first  duty  on  his  appointment  is  to  get  to- 
gether all  the  property  of  the  bankrupt,  to  collect  any  debts 
owing  to  him,  by  suit  if  necessary,  and  to  turn  everything  into 
money  in  the  quickest  manner  possible,  without  unduly  sacri- 
ficing the  assets.  As  a  general  rule,  if  the  property  of  the 
tenkrupt  IS  in  the  form  of  a  business,  it  is  necessary  to  keep 
the  busmess  running  for  some  time  in  order  to  realize  as  much 
as  possible. 

It  is  the  trustee's  duty  to  conduct  this  business  in  what- 
ever manner  he  considers  most  advantageous,  and  to  sell  the 
property  for  the  best  price  he  can  obtain.  The  trustee  must 
dispose  of  aU  leases,  and  everything  else  owned  by  the  bank- 
rupt,  except  the  property  exempted  from  the  claims  of 
creditors  by  the  state  laws. 


From  the  receipts  he  would  pay  taxes  due,  cost  of  preserv- 
ing the  estate,  filing  fees,  court  costs,  an  attorney's  fee,  and 
wages  due.  Servants  and  employees  for  three  months  prior 
to  proceedings  are  entitled  to  be  paid  before  other  claims  are 
settled.  Then  he  would  discharge  any  secured  debts,  to  the 
value  of  the  security. 

The  order  of  priority  of  claims  is  as  follows: 

1.  Taxes  due. 

2.  Costs  of  preserving  the  property  after  petition  was 

filed. 

3.  Filing  fees  paid  by  creditors  and  costs  of  reclaiming 

property. 

4.  Costs  of  bankruptcy  proceedings. 

5.  Wages  due  workmen,  clerks,  and  salesmen  earned 

three  months  prior  to  filing  petition,  up  to  $300 
to  each  claimant. 

6.  Debts  having  priority  by  laws  of  state. 

7.  General  claimants  are  paid  dividends  as  the  estate 

is  liquidated. 

If  after  paying  these  items  there  remains  enough  to  pay 
5  per  cent  of  the  total  amount  of  all  the  other  claims,  the 
creditors  are  entitled  to  have  a  dividend  declared  within  thirty 
days  after  the  debtor  has  been  adjudicated  a  bankrupt.  If 
not,  they  must  wait  until  the  trustee  has  collected  a  sufficient 

amount. 

Afterwards  the  creditors  are  entitled  to  have  dividends 
declared  from  time  to  time  until  the  entire  amount  of  all  the 
property  in  the  trustee's  hands  has  been  paid  out.  This  may 
be  a  tedious  process. 

When  he  has  distributed  the  final  dividend,  the  trustee 
makes  up  his  accounts  and  presents  them  to  the  court  asking 
a  discharge.  He  is  then  entitled  to  fees  based  on  the  value  of 
the  property  which  has  gone  through  his  hands. 


n 


6io 


BANKRUPTCY 


§  537*    Rights  and  Duties  of  Bankrupts  in  Bankruptcy  Pro- 
ceedings 

It  is  the  duty  of  the  bankrupt  to  submit  to  examination  if 
his  creditors  require  it,  to  hand  over  to  the  trustee  in  bank- 
ruptcy  all  property  in  his  possession,  with  the  exception  of 
what  he  is  entitled  to  claim  as  exempt,  and  to  give  full  in- 
formation of  all  his  affairs  in  order  to  aid  the  trustee  in 
straightening  out  matters. 

The  bankrupt  may  offer  to  compromise  the  claims  against 
him  by  paying  a  certain  amount  on  the  dollar.  He  must  file 
a  list  of  all  his  property  and  aU  the  claims  at  the  same  time 
If  a  majonty  of  his  creditors,  who  also  hold  a  majority  in 
amount  of  the  claims  against  him,  sign  a  written  consent  to 
the  compromise  and  the  court  approves  it,  the  claims  wiU  then 
be  compromised  and  the  bankruptcy  proceedings  dismissed 
Where  a  compromise  is  arranged,  the  bankrupt  must  pay  the 
expenses  of  the  proceedings  up  to  the  time  of  the  arrangement 
A  bankrupt  cannot  be  subjected  to  arrest  for  any  claim  in- 
volved in  the  bankruptcy  proceedings,  except  for  contempt  of 
the  court  having  charge  of  the  proceeding  or  for  attempting 
to  escape  from  its  jurisdiction  so  as  to  avoid  an  examination. 
He  IS  entitled  to  claim  as  exempt  such  property  as  the  state 
law  allows  him.    This  usually  consists  of  necessary  household 
furmture  and  wearing  apparel  and  such  tools  as  are  necessary 
for  carrying  on  a  trade. 

When  the  bankrupt  has  given  an  honest  account  of  all  his 
debts  and  belongings,  and  has  done  all  in  his  power  to  aid  the 
proceedings,  he  is  entitled  to  a  discharge.  This  relieves  him  of 
the  legal  obhgation  to  pay  in  full  any  of  the  debts  which  were 
included  in  the  proceedings  in  bankruptcy.  He  cannot  be  pro- 
ceeded  against  at  law  unless  he  acknowledges  in  writing  that 
such  debts  are  stiU  due  and  owing.  But  the  moral  obligation 
to  pay  them  still  remains,  and  if  at  any  future  time  he  finds 


BANKRUPTCY  PROCEEDINGS 


6ll 


himself  able,  he  should  feel  in  honor  bound  to  pay  the  remain- 
ing amounts  due. 

It  is  important  that  the  bankrupt  should  apply  for  his  dis- 
charge within  the  year  after  filing  his  petition,  or  his  right  is 
gone  forever,  and  he  will  still  be  liable  for  the  full  amount  of 
his  debts. 

Notes: 

1.  Honesty  is  always  the  best  policy  in  bankruptcy 

proceedings. 

2.  A  fair  compromise  should  alv/ays  be  accepted. 

§  538.    Preferred  Creditors 

Any  preference  shown  to  any  creditor  the  effect  of  which 
is  to  give  the  favored  creditor  all  or  a  greater  percentage  of 
his  claim  than  the  others  of  the  same  class,  will  be  set  aside. 
The  trustee  may  go  back  four  months  prior  to  the  filing  of 
the  petition  in  bankruptcy,  and  scrutinize  any  payment,  assign- 
ment, or  transfer  of  goods  or  judgments  taken  against  the 
bankrupt.  The  voidable  preferences  are  those  to  creditors. 
The  test  is  whether  by  such  action  the  favored  creditor  re- 
ceived a  larger  percentage  of  his  claim  than  other  creditors 
of  the  same  class.  The  bankrupt  must  have  been  insolvent 
when  he  made  the  preferences.  The  favored  party  must  "have 
had  reasonable  cause  to  believe  that  the  debtor  was  insolvent." 
The  trustee  must  bring  suit  to  set  aside  the  preference,  for 
the  transaction  is  "voidable,"  not  "void." 


Review  Questions 

1.  What  courts  have  jurisdiction  in  bankruptcy?    Where  do  these 

courts  get  their  authority  ?  What  is  the  first  step  in  bankruptcy 
proceedings  ? 

2.  For  what  purpose  is  a  receiver  appointed  in  bankruptcy  proceed- 

ings?   Who  appoints  the  receiver?    What  is  an  adjudication 
in  bankruptcy? 


6l2 


BANKRUPTCY 


la. 


3.  What  arc  the  functions  of  a  referee  in  bankruptcy?    Who  ap- 

points referees? 

4.  What  is  the  jurisdiction  and  power  of  a  referee  in  bankruptcy 

and  what  compensation  is  he  entitled  to?  ' 

5.  After  adjudication  what  is  the  next  step?    What  must  the  bank- 

rupt's schedules  contain? 

6.  What  is  the  object  of  the  meeting  of  creditors  ?    What  is  neces- 

sary to  the  election  of  a  trustee?  What  voting  right  has  a 
secured  creditor  ? 

7.  When  do  creditors  file  their  claims?    What  is  the  usual  proof 

of  a  claim?  How  long  after  the  adjudication  may  claims  be 
filed?  If  a  creditor  has  secured  a  judgment  does  it  give  him 
any  advantage?  On  what  property  of  a  debtor  is  a  judgment 
a  lien  in  your  state? 

a    What  is  the  effect  of  a  compromise?    If  a  creditor  objects  to 
compromise  offered  by  bankrupt,  what  can  he  do  ? 

9^    What  is  the  duty  of  a  receiver  on  taking  possession  of  property? 
What  should  a  receiver  do  with  trust  funds  in  his  possession? 
What  are  the  duties  of  a  trustee  in  bankruptcy?    How  is  he 

appointed?  In  what  order  must  he  pay  claims? 
Who  can  require  the  examination  of  a  bankrupt?  Who  may 
accept  a  compromise?  Can  a  bankrupt  be  arrested  for  any 
claim  while  bankruptcy  proceedings  are  pending?  What  must 
he  do  to  claim  a  discharge?  When  must  a  bankrupt  apply 
for  his  discharge? 

What  constitutes  a  preference  under  the  Bankrupt  Act  as  to 
payments  to  creditors? 

Is  any  payment  of  money  by  a  debtor  to  his  creditor  within  four 
months  of  bankruptcy  open  to  attack  as  a  fraudulent  prefer- 
ence?   A  debtor  executed  a  chattel  mortgage  in  favor  of  a 
money  lender  in  consideration  of  a  present  cash  advance 
which,  to  the  money  lender's  knowledge,  was  intended  to  be 
and  was  paid  to  a  creditor.     Is  the  chattel  mortgage  valid 
as  against  the  other  creditors? 
A  trader  in  insolvent  circumstances  sold  his  stock  in  trade  and 
deposited  the  purchase  money  to  the  credit  of  his  account 
in  bank.     At  the  time  an  overdue  note  of  his  was  held  by 
tile  bank  and  he  gave  the  bank  a  check  to  cover  the  same. 
Three  months  later  he  was  bankrupt.     Is  such  payment  a 
preference  and  therefore  to  be  set  aside? 


10. 


II. 


CHAPTER  LXXXIV 


DISCHARGE  IN  BANKRUPTCY 

§539.    Discharge  of  a  Bankrupt 

The  advantage  of  bankruptcy  proceedings  to  the  bankrupt 
is  that  one  month  after  being  adjudged  a  bankrupt  he  may 
ask  the  court  for  his  discharge.  The  judge  will  hear  the 
application  and  will  hear  the  trustee  or  other  parties  in  interest 
in  opposition.  After  hearing  the  application,  the  judge  will 
discharge  the  applicant,  unless  it  is  shown: 

1.  That  he  has  committed  an  offense  for  which  he 

could  be  imprisoned. 

2.  That  he  has  destroyed,  concealed,  or  failed  to  keep 

books  from  which  his  financial  condition  might 
be  ascertained. 

3.  That  he  obtained  money  or  property  on  credit  by 

a  materially  false  statement  in  writing. 

4.  That  he  has  removed,  destroyed,  or  concealed  or 

permitted  others  to  remove,  destroy,  or  conceal 
any  of  his  property,  to  hinder,  delay,  or  defraud 
his  creditors,  within  four  months  prior  to  his 
bankruptcy  or  during  the  proceedings. 

5.  That  he  has  had  a  discharge  in  voluntary  bankruptcy 

within  the  six  months  prior. 

6.  That  in  the  proceedings  he  has  refused  to  obey  any 

lawful  order  of,  or  to  answer  any  material  ques- 
tion approved  by  the  court. 

The  trustee  would  not  be  allowed  to  fight  the  bankrupt's 
discharge  unless  a  creditors*  meeting  authorized  such  action. 

613 


6i4 


BANKRUPTCY 


In  cases  where  the  bankrupt  has  failed  honestly,  there  is  not 
usually  opposition  to  his  discharge  and  he  is  then  free  to  begin 
business  again  hampered  only  by  impaired  credit,  the  natural 
result  of  his  miscalculations. 


§  540.    What  Debts  Remain  Undischarged 

After  a  discharge  in  bankruptcy,  the  bankrupt  still  remains 
under  obligation  to  pay  any  debts  which  were  not  due  at  the 
time  of  the  discharge.  He  is  still  liable  for  rent  on  a  lease 
not  yet  expired  which  falls  due  after  the  discharge  in  bank- 
ruptcy. It  is  the  trustee's  duty  to  sell  such  a  lease  if  possible, 
but  the  bankrupt  remains  liable  to  the  landlord  in  case  the 
purchaser  f  aOs  to  pay. 

The  bankrupt  should  take  care  to  include  all  debts  due  in 
the  list  which  he  files,  because  any  debts  not  mentioned  there 
remain  valid  claims  against  him  after  his  discharge.  Of 
course,  if  the  creditors  come  in  themselves  and  prove  their 
claims  in  the  proceedings,  the  bankrupt  is  then  no  longer  liable. 
Also,  these  creditors  may  have  a  right  to  have  the  pro- 
ceedings set  aside. 

There  are  certain  claims  which  the  law  provides  that  a 
proceeding  in  bankruptcy  shall  not  discharge.  It  does  not 
cover  taxes,  nor  the  duty  to  support  wife  and  children.  Nor 
does  it  release  the  bankrupt  from  claims  against  him  because 
of  injuries  to  other  people  or  because  of  fraud  or  wrongful 
acts.  If  a  bankrupt's  wife  has  divorced  him,  it  does  not  re- 
lease him  from  his  duty  to  pay  alimony.  It  does  not  discharge 
debts  of  a  fiduciary  who  misappropriated  collections,  as  an 
attorney  who  thus  robs  his  client.  Partial  payments  on  a 
debt  discharged  by  bankruptcy  will  not  revive  the  entire  debt. 

Note: 

I.     No  forms  on  bankruptcy  are  given  because  of  the 
number  of  them  and  in  either  voluntary  or  in- 


DISCHARGE  IN  BANKRUPTCY 


615 


voluntary  bankruptcy  the  services  of  a  lawyer 
would  be  needed.  Complete  series  of  such  forms 
may  be  obtained  at  any  legal  stationer's. 


Review  Questions 

1.  What  is  the  effect  of  a  discharge  in  bankruptcy?    What  are  the 

causes  that  may  prevent  a  discharge  ? 

2.  What  debts  would  remain  against  a  bankrupt  after  his  discharge  ? 

If  the  bankrupt  has  failed  to  list  certain  debts,  what  is  the 
effect  ? 

3.  Will  the  discharge  in  bankruptcy  of  a  surety  release  him  from 

contribution  to  a  cosurety  who  subsequently  pays  the  debt? 

4.  A  being  in  financial  difficulties,  his  creditors,  with  the  exception 

of  B,  agree  to  accept  50  cents  on  the  dollar.  As  an  inducement 
to  B,  A  secretly  agrees  to  give  him  75  cents.  B  accepts.  What 
rights  has  B  against  A,  and  what  effect  does  this  contract  have 
on  the  whole  transaction? 


I  111 


PART  XVI 


BAILMENTS  AND  COMMON  CARRIERS 


CHAPTER  LXXXV 

BAILMENT 

§  541.    What  Is  Meant  by  Bailment 

A  bailment  is  a  delivery  of  personal  property  to  one  person 
by  another  person  to  be  used  or  kept  for  some  particular 
purpose  and  to  be  returned  thereafter.  The  person  to  whom 
the  property  is  given  or  delivered  is  known  as  the  "bailee" 
and  the  person  making  the  delivery  as  the  "bailor."  Bailment 
is  distinguished  from  a  gift  or  a  sale  by  the  fact  that,  although 
delivery  is  made,  title  does  not  pass.  Unless,  however,  the 
property  so  delivered  is,  by  the  express  or  the  implied  agree- 
ment of  the  parties,  to  be  returned,  the  transaction  is  usually 
viewed  as  a  gift  or  a  sale.  But  if  the  agreement  is  that  the 
property  is  to  be  returned,  even  though  in  a  different  form, 
it  will  be  considered  a  bailment. 


§542.    Kinds  of  Bailment 

There  are  two  general  classes  of  bailment.  These  are: 
(i)  bailments  for  the  benefit  of  one  party,  and  (2)  bailments 
for  the  benefit  of  both  parties. 

Bailments  for  the  sole  benefit  of  one  party  are  known  as 
gratuitous  bailments,  and  there  are  two  subdivisions:  (i) 
bailments  for  the  sole  benefit  of  the  bailor,  and  (2)  bailments 
for  the  sole  benefit  of  the  bailee. 

Bailments  for  the  benefit  of  both  parties  are  divided  into : 
(i)  pledge  or  pawn,  (2)  the  use  of  a  thing  for  hire,  and  (3) 
hired  services  about  a  thing. 

These  classes  are  again  divided  as  shown  by  the  following 

summary: 

619 


620  BAILMENTS  AND  COMMON  CARRIERS 

1.  Bailments  for  sole  benefit  of  the  bailor: 

(a)  Mandate  or  mandatum} 

(b)  Deposit  or  depositum. 

2.  Bailments  for  the  sole  benefit  of  the  bailee: 

(a)     Loan  without  charge  or  commodatum, 

3.  Bailments  for  the  joint  benefit  of  both  parties: 

(a)  Pawn,  pledge,  or  pigntis, 

(b)  Hiring  of  a  chattel  or  locatio  ret. 

(c)  Delivery  of  a  chattel  to  have  something 

done  to  it  or  about  it: 

( 1 )  Delivery  for  custody  or  care. 

(2)  Delivery  for  work  or  services  upon. 

(3)  Delivery  for  carrying  or  transport. 


§  543-    Mandate  and  Deposit 

In  these  cases  the  bailee  is  not  paid  for  what  he  does. 
A  goes  off  for  a  vacation,  and  asks  a  neighbor  to  take  charge 
of  a  box  of  silverware.  The  neighbor  does  not  have  to  do 
this  and  might  properly  suggest  that  a  safe-deposit  company 
would  be  safer.  If  the  neighbor  does  take  the  box  he  is 
bound  to  take  care  of  it.  If  he  is  careless  and  because  of 
such  lack  of  care  the  box  is  stolen,  he  will  be  liable  to  A  for 
its  value.  The  kindly  neighbor  is  not  obligated  to  take  the 
greatest  care,  but  if  he  undertakes  the  care  of  it  at  all  he  must 
take  ordinary  care  and  precaution. 

A  man  who  finds  a  lost  article,  or  some  property  left  with 
him  by  mistake  is  a  gratuitous  bailee,  and  must  not  be  guilty 
of  negligence  in  caring  for  the  property. 

Mandatum  and  depositum  are  of  rare  occurrence.  In  a 
simpler  state  of  society  a  man  was  often  asked  to  put  a 
neighbor's  gun  in  order  or  to  break  in  his  colt,  or  to  take  care 
of  something  for  him,  but  that  day  is  past. 


'The  iuUctxed  words  are  the  Roman  law  terms. 


BAILMENTS 


621 


§  544.    Commodatum  or  Loan 

When  a  man  borrows  any  article  of  personal  property  he 
is  a  bailee  for  his  own  benefit  and  must  take  the  greatest  care 
of  the  article,  and  if  it  is  lost,  injured,  or  stolen  he  is  liable 
for  the  least  lack  of  care  or  slightest  negligence.  On  the  other 
hand,  if  the  loss  or  damage  occurs  when  he  has  taken  all 
precautions,  he  is  not  legally  liable  for  the  loss.  If  a  man 
borrows  a  diamond  pin,  wears  it  carefully,  and  at  night  puts 
it  in  a  small  safe  from  which  it  is  stolen  by  burglars,  he  cannot 
legally  be  held  for  its  value. 


§  545.    Pledge  or  Pawn 

A  pledge  is  a  transfer  of  the  chattel  as  security  for  the 
payment  of  a  debt  or  the  fulfilment  of  some  other  obligation. 
A  person  who  makes  a  business  of  loaning  money  on  the 
pledge  of  personal  property  is  called  a  pawnbrolcer.  It  is  not 
oiften  that  ordinary  chattels  are  given  as  pledges  except  in 
transactions  with  pawnbrokers.  But  it  very  often  happens 
that  bills,  notes,  stocks,  and  bonds  are  used  as  security  for 
money  borrowed.  In  such  cases  the  term  "collateral  security" 
is  generally  used.  Where  personal  property  is  used  as  security 
for  a  debt,  it  is  usual  to  give  a  chattel  mortgage. 

A  pledge  may  be  the  result  of  a  written  contract,  but  it 
may  be  made  merely  by  transferring  the  property.  In  the 
latter  case  the  pledge  will  remain  in  force  so  long  as  the  pledgee 
retains  possession  of  the  property. 

To  make  a  valid  pledge,  delivery  is  absolutely  necessary. 
Bills,  notes,  and  corporate  stocks  must  be  indorsed  in  blank 
when  used  as  collateral  security.  In  this  case  some  writing 
should  accompany  the  pledge  in  order  to  define  its  terms  and 
to  prevent  misunderstandings.  A  pledge  of  stock  is  usually 
made  by  simply  depositing  the  certificate  indorsed  in  blank 
with  the  pledgee.    In  the  case  of  corporate  stock,  the  pledgee 


622 


BAILMENTS  AND  COMMON  CARRIERS 


BAILMENTS 


623 


may  have  the  stock  transferred  on  the  books  of  the  company 
and  new  certificates  issued  in  his  own  name. 

In  most  cases  where  collateral  security  is  given,  it  is 
provided  that  if  the  debt  is  not  paid  when  due  the  pledgee 
may  sell  the  security  and,  after  paying  expenses  of  the  sale 
and  the  debt  secured,  turn  over  any  surplus  to  the  pledgor. 
In  such  cases  the  pledgee,  even  though  given  the  right  to  sell 
at  a  private  sale  without  notice,  would  gain  greater  security 
by  giving  notice  and  selling  at  public  sale,  the  notice  given  to 
be  a  formal  notice  in  writing,  specifying  the  time  and  the  place 
of  the  sale.  In  many  states  sales  of  pledged  property  are 
regulated  by  the  laws. 

In  general,  the  pledgor,  upon  discharge  of  his  obligation, 
is  entitled  to  the  return  of  the  specific  property  pledged,  but 
corporate  stock  has  a  diiferent  standing,  and  if  no  special 
agreement  has  been  made,  the  pledgee  is  not  liable  for  its 
conversion  by  reason  of  his  sale  or  other  disposition  of  the 
certificates  delivered  to  him  so  long  as  he  keeps  at  all  times 
an  equal  number  of  shares  of  the  same  class  and  value  to  be 
delivered  to  the  pledgor  upon  discharge  of  his  obligation. 

§  546.    Hiring  of  a  Chattel 

This  is  a  bailment  for  mutual  benefit.  Property  is  delivered 
to  a  bailee  to  be  used  by  him,  paid  for  by  him  and  returned. 
If  A  hires  an  automobile,  he  must  use  it  with  care  and  skill 
and  pay  for  its  use.  If  an  accident  occurs  despite  his  care 
and  skill,  he  is  not  liable  to  the  bailor.  If  he  lacked  skill  or 
let  someone  who  lacked  skill  operate  it,  or  if  he  was  careless 
or,  reckless,  he  would  be  liable  to  the  bailor.  If  the  accident 
happened  by  reason  of  defects  in  the  automobile,  the  bailee 
would  not  be  liable  to  the  bailor. 

If  the  bailee  hired  the  automobile  for  one  day  or  for  a 
certain  trip  and  kept  it  longer  or  went  further,  he  might  make 
himself  liable  for  any  damage,  whether  he  was  at  fault  or  not. 


If  the  bailee  injures  a  third  person  or  third  persons  in 
an  automobile,  he  alone  is  responsible,  unless  the  cause  was 
some  defect  in  the  automobile  of  which  the  bailor  should  have 

warned  him. 

If  a  third  person  wrongfully  iftjures  the  car,  the  bailee 
is  not  responsible  and  the  bailor  stands  the  loss. 

§  547.    Bailment  for  Custody,  Services,  or  Transport 

The  delivery  of  property  to  a  bailee  to  keep  it  safely,  or 
to  work  upon  it,  or  to  convey  it  somewhere  for  a  compensation 
to  be  paid  by  the  bailor,  the  bailee  to  return  it,  is  technically 
called  locatio.    Under  this  heading  there  are  three  cases: 

1.  Hired  custody  of  a  thing,  where  the  bailee  takes 

care  of  property  for  the  bailor  for  a  compensa- 
tion, such  as  a  warehouseman. 

2.  Hired  services  upon  a  thing,  where  the  bailee  is  to 

work  upon  property  for  a  compensation. 

3.  Hired  carrying  of  a  thing,  where  the  bailee  is  to 

carry  or  transport  goods  for  the  bailor  for  a 
compensation,  such  as  a  bailment  to  ^n  express 
company  to  carry  the  bailor's  goods. 

All  of  these  cases  come  within  the  general  rules  relating 
to  bailments  as  set  forth  in  the  following  sections. 

§  548.    The  Contract  of  Bailment 

Bailments  for  the  sole  benefit  of  one  of  the  parties  are 
not  strictly  contracts,  for  they  lack  the  essential  element  of 
a  consideration.  If  there  were  a  consideration,  the  arrange- 
ment would  benefit  both  parties  and  this  would  throw  the 
transaction  into  another  class.  This  bailment  may  also  be 
created  by  the  voluntary  action  of  the  bailee,  as  where  he 
finds  and  cares  for  a  lost  article.  It  may  also  be  created 
involuntarily  by  the  property  in  question  being  put  on  the 


634 


BAILMENTS  AND  COMMON  CARRIERS 


BAILMENTS 


62s 


i 


I'l 


bailee's  land  during  a  flood  or  some  other  unforeseen  occur- 
rence. 

Bailments  for  the  benefit  of  the  bailee  are  created  only  by 
agreement,  as  it  requires  the  assent  of  the  bailor  to  lend  the 
property,  and  the  request  of  the  bailee  to  borrow  the  property, 
and  the  delivery  of  the  property  must  follow.  A  mere  promise 
to  lend  cannot  be  enforced,  for  there  is  no  consideration. 

Bailments  for  the  benefit  of  both  bailor  and  bailee  can  be 
created  only  by  contract,  since  the  minds  of  both  parties  must 
meet  on  the  subject  and  there  is  always  a  mutual  consideration 
in  the  benefit  to  each  party. 

The  execution  of  a  contract  of  bailment  does  not,  of 
course,  take  place  until  delivery  is  made  by  one  party  or  the 
other,  as  the  case  may  be. 

§549.    Property  Rights 

A  bailment  must  be  distinguished  from  a  sale  or  a  barter. 
In  a  sale  the  title  of  the  property  passes  from  seller  to  buyer, 
while  in  a  bailment  the  title  does  not  go  to  the  bailee  but 
remains  with  the  bailor.  In  a  bailment  the  identical  property, 
though  perhaps  in  a  different  form,  is  to  be  returned  In 
barter  some  other  sort  of  property  is  to  be  returned. 

A  bailment  may  be  made  with  a  power  in  the  bailee  to 
buy  if  he  so  desires.  In  this  case  the  bailment  becomes  a  sale 
when  the  bailee  expresses  his  approval  of  the  goods. 

In  the  case  of  a  mill  where  grain  is  to  be  ground,  the 
grain  of  one  owner  may  be  mixed  with  the  grain  of  another 
owner.  This,  however,  is  still  a  bailment,  provided  that  the 
owners  make  no  special  provisions.  If  the  bailor  does  not 
wish  his  grain  to  be  mixed,  he  must  specifically  direct  other- 
wise. 

A  bailor  may  not  be  the  true  owner  of  the  property.  For 
example,  a  man  hires  an  auto  and  puts  it  into  a  garage.  Here 
there  are  two  bailments,  one  of  the  auto  owner  and  the  hirer, 


^and  one  of  the  hirer  and  the  garage  owner.  A  person  who 
finds  property  and  then  takes  it  to  someone  else  to  appraise 
it  has  created  a  bailment.  He  is  a  bailor  and  as  such  is  entitled 
to  the  property  against  anyope  but  the  true  owner.  A  bailee 
cannot  dispute  the  title  of  the  bailor. 

§  550.    Duties  of  the  Bailee 

When  the  bailment  is  for  the  sole  benefit  of  the  bailor, 
the  bailee  is  not  forced  to  perform  the  bailment  even  though 
he  has  promised  to  do  so.  This  is  because  there  is  no  con- 
sideration in  this  class  of  bailment.  Once  the  bailee  is  in  posses- 
sion  of  the  goods,  however,  he  must  not  use  the  article  except 
as  is  necessary  for  the  proper  care  of  it;  he  must  not  by 
negligence  injure,  lose  or  destroy  it;  he  must  take  such  care 
of  the  property  as  an  ordinarily  careful  man  would  of  his  own 
property ;  and  he  must  return  the  property  at  the  termination 
of  the  bailment  with  any  increase  or  profit  gained  from  it 
while  in  his  possession. 

When  a  bailment  is  for  the  sole  benefit  of  the  bailee,  the 
bailee  must  take  greater  care  of  the  property  than  in  any  other 
sort  of  bailment,  for  the  reason,  of  course,  that  it  is  for  his 
benefit.   He  is  liable  for  slight  negligence.   He  is  not  liable  for 
an  inevitable  accident,  but  is  liable  for  an  accident  or  injury  to 
the  property  which  with  due  care  he  could  have  prevented. 
At  all  times  his  first  thought  must  be  of  the  borrowed  property 
rather  than  of  his  own.     He  must  not  loan  the  property  to 
another  unless  with  the  bailor's  consent.    Any  deviation  from 
the  terms  upon  which  the  property  was  first  loaned  may  result 
in  the  bailee's  either  having  to  insure  the  article  or  his  being 
liable  for  conversion  (wrongful  use)  of  the  property.     The 
bailee  must  return  the  property  with  any  profits  at  the  end 

of  the  bailment. 

When  the  bailment  is  for  the  benefit  of  both  parties,  the 
bailee's  duties  should  be  fixed  by  the  contract,  but  in  the 


BAILMENTS  AND  COMMON  CARRIERS 


absence  of  such  provisions  the  bailee  must  use  such  care  as 
a  man  would  ordinarily  use  with  his  own  property.  He  is 
liable  for  negligence;  he  is  not  liable  for  inevitable  accidents 
or  for  the  wilful  acts  of  a  third  person.  He  has  the  right 
to  exclusive  use  of  the  property  for  the  specified  time,  and 
he  may  sue  a  third  party  for  disturbance  of  this  right.  He 
must  use  the  property  only  for  the  purpose  stated  in  the 
contract,  and  he  is  liable  to  third  persons  for  injuries  received 
by  them  due  to  his  negligence  in  using  the  property,  unless 
the  bailor  knew  that  such  accident  or  occurrence  was  likelv 
to  happen  and  failed  to  warn  the  bailee.  The  bailee  must 
pay  the  bailor  for  the  use  of  the  property,  and  if  no  definite 
price  has  been  fixed  a  reasonable  sum  will  be  due.  If  the 
property  is  destroyed  without  fault  of  bailor  or  bailee,  the 
bailee  must  pay  the  bailor  the  reasonable  value  of  the  use  of 
the  property  up  to  the  time  of  its  destruction.  The  bailee  must 
return  the  property  at  the  end  of  the  bailment,  paying  the 
bailor  for  any  avoidable  damages  done  to  the  property. 

A  warehouseman  would  be  liable  for  goods  stolen,  even 
though  there  was  no  negligence  on  his  part. 

The  keeper  of  a  bathing  establishment  is  liable  for  the 
loss  of  clothing;  also  for  valuables,  unless  he  provides  a 
safe  for  them.*  The  proprietor  of  a  barber  shop  kept  for 
public  patronage  is  liable  to  a  customer  for  the  value  of  his 
hat  deposited  on  a  hatrack  in  the  shop  while  the  customer 
is  being  shaved  and  which  disappears  from  the  shop  and 
is  thus  lost,  such  proprietor  being  under  these  facts  a  bailee 
for  hire  as  to  the  customer's  hat.  Where,  however,  the 
proprietor  has  provided  a  closet  and  an  attendant  whose  busi- 
ness it  is  to  receive  hats  and  coats,  the  proprietor  is  riot  liable 
if  the  customer  leaves  his  hat  or  coat  on  a  hook  in  the  shop 
near  the  door  and  it  is  stolen." 


•Bird  V.  Everard,  4  Misc.  Rep.   (N.  Y.  C   Pl.>   104. 
'Trowbridge  v.  Schriever,  5  Daly  (N.  Y.)   11. 


BAILMENTS 


627 


1 551.    Dissolution  of  Bailment 

/A  bailment  may  be  terminated  or  dissolved  by  any  one  of 
the  following  methods: 

1.  By  the  elapsing  of  the  time  for  which  the  thing  was 

bailed. 

2.  By  the  accomplishment  of  the  object  for  which  the 

thing  was  bailed. 

3.  By  the  act  of  the  parties,  as  an  agreement  between 
them  to  end  the  bailment,  or  where  by  the 
nature  of  the  bailment  or  the  terms  of  the  bail- 
ment either  party  may  terminate  it  at  will. 

4.  By  the  destruction  of  the  subject  matter  of  the 

bailment. 

5.  By  the  conversion  of  the  thing  bailed,  where  the 
bailee  uses  or  disposes  of  it  against  the  terms  of 

the  bailment. 

6.  By  operation  of  law,  where  the  bailee  purchases  the 
thing  and  becomes  owner.* 

It  is  to  be  understood,  however,  that  the  dissolution  of 
the  bailment  by  any  of  the  ways  above  stated  does  absolve 
the  parties  from  any  liabilities  and  obligations  imposed  by  the 
bailment  so  far  as  they  are  not  completely  fulfilled. 


Review  Questions 

1.  What  is  a  bailment?    In  a  bailment,  who  has  title  to  the  prop- 

erty?    Who  has  possession? 

2.  What  are  the  gratuitous  bailments?    Explain  each  kind. 

3.  Distinguish  pledge  from  mortgage. 

4.  Define  collateral  security. 


•Am.  &  Eng.  Encyc  on  Bailments,  Vol.  Ill,  p.  764. 


628 


BAILMENTS  AND  COMMON  CARRIERS 


5.  When  corporate  stock  is  pledged,  must  the  identical  stock  be 

returned  ?    Explain. 

6.  Collateral   security   has   been   deposited  with   the   payee   of  a 

promissory  note.     How  should  the  payee  proceed  to  satisfy 
the  note  from  the  collateral? 

7.  What  is  bailment  for  custody?    Bailment  for  services?     Bail- 

ment for  transport? 

8.  What  kinds  of  bailments  are  not  contracts  ?    Why  ? 

9.  What  kinds  of  bailments  are  contracts  ?    Why  ? 
Can  a  bailee  refuse  to  return  an  article  bailed  on  the  ground 

that  the  bailor  is  not  the  real  owner? 
What  difference  is  there  between  the  care  demanded  of  the 

bailee,  when  the  bailment  is:  (a)  for  his  own  benefit,  (b)  for 

the  benefit  of  both,  (c)  for  the  benefit  of  the  bailor?    Why? 
How  may  a  bailment  be  terminated  ? 
What  is  the  duty  of  the  bailee  as  to  returning  the  property 

bailed? 


10. 


II. 


12. 


CHAPTER  LXXXVI 

COMMON  CARRIERS 

§552.    Common  Carriers 

The  bailee  known  as  a  common  carrier  has  been  mentioned 
in  the  case  of  hired  services  upon  a  thing,  under  bailments 
for  the  benefit  of  both  parties.  This  bailee  assumes  the  great- 
est liability  of  all.  Now,. however,  by  special  contract  the 
bailee  generally  avoids  the  extreme  liability  which  he  had  to 
assume  under  the  common  law. 

A  common  carrier  undertakes,  for  compensation,  to  trans- 
port property  from  one  place  to  another.  He  is  liable  for 
wrongfully  refusing  to  transport  any  goods,  and  he  insures 
and  is  liable  for  all  damage  or  loss  unless  such  damage  or 
loss  was  brought  about  by  the  act  of  God  (storms,  floods, 
hurricanes,  etc.),  or  by  a  public  enemy,  or  by  the  state  or 
the  civil  authorities,  or  by  the  shipper  himself  by  not  properly 
packing  or  addressing  the  property. 

A  common  carrier,  so-called  in  contradistinction  to  a 
private  carrier,  serves  the  public  and  must  serve  all  who  come. 
He  may,  however,  lawfully  refuse  to  carry  any  goods  which 
are  dangerous  or  which  are  out  of  his  ordinary  line  of  business 
or  beyond  his  carrying  capacity.  Otherwise,  a  common  carrier 
must  carry  goods  for  all  bailors  without  preference  for  either 
one  or  the  other  in  rates,  or  care  of  property,  or  rapidity  of 

transport. 

The  failure  of  a  carrier  to  deliver  goods  to  the  consignee 
might  arise  from :  ( i )  the  taking  of  goods  by  some  judicial 
process,  (2)  the  delivery  of  them  to  an  adverse  claimant  who 
is  the  true  owner  (here  the  carrier  must,  at  his  own  risk,  judge 

629 


630 


BAILMENTS  AND  COMMON  CARRIERS 


correctly  who  is  the  rightful  owner  of  the  goods),  and  (3) 
the  right  of  stoppage  in  transitu  having  been  exercised  by  the 
consignor.  The  last  case  is  the  most  frequent,  and  is  more 
fully  explained  in  §  113. 

A  carrier  has  the  right  to  insure  the  goods  for  the  time 
that  they  are  in  his  possession  in  order  to  protect  himself,  but 
he  cannot  sell  the  goods  unless  in  case  of  great  emergency  or 
to  prevent  loss.  A  carrier  may  also  bring  an  action  to  regain 
or  to  hold  possession  of  the  goods  against  trespassers  or  for 
injuries  to  the  goods.  He  cannot,  however,  bring  suit  if  the 
owner  of  the  goods  has  brought  an  action  first 

1 553.    The  Lien  of  the  Common  Carrier 

A  common  carrier  is  given  a  Ken  on  goods  in  his  posses- 
sion; that  is,  if  the  owner  or  the  consignee  fails  to  pay  his 
reasonable  charges  for  transporting  the  goods  the  carrier  may 
retain  them  until  such  payment  is  made.  This  right  of  a 
carrier  is  recognized  everywhere,  but  he  may,  by  special  con- 
tract, waive  that  right.  A  shipper  is  primarily  liable  for  the 
payment  of  freight,  and  the  consignee  may  also  become  liable 
by  agreement,  or  where  the  bill  of  lading  recites  that  he  is 
to  receive  the  goods  on  payment  of  the  freight  and  he  accepts 
the  goods,  but  even  in  this  case  the  consignor  is  still  liable. 

A  carrier  has  no  lien  upon  a  shipment  for  debts  on  other 
consignments  previously  incurred  by  the  shipper.  If,  in  any 
case,  the  carrier  holds  goods  and  the  shipper  sues,  the  carrier 
will  not  have  to  pay  more  than  the  value  of  the  goods  minus 
all  the  claims  of  the  carrier. 

§  554.    The  Termination  of  the  Bailment 

As  a  rule,  if  a  carrier  fails  to  deliver  the  goods  for 
any  reason,  including  the  act  of  God,  he  is  not  entitled  to 
compensation  for  the  carriage.  But  if  the  goods  are  in- 
terrupted on  the  journey,  with  delivery  to  a  rightful  owner  or 


COMMON  CARRIERS 


631 


a  stoppage  in  transitu,  the  carrier  is  entitled  to  a  pro  rata 
payment  of  freight.  The  liability  of  a  common  carrier  ends 
when  the  goods  are  delivered  to  the  consignee  or  when,  after 
due  notice,  a  consignee  leaves  the  goods  beyond  a  certain  time 
in  the  hands  of  the  carrier.  When  this  last  occurs  the  carrier 
becomes  a  warehouseman. 

§  555.    Interstate  Commerce  Commission 

This  Commission  was  formed  under  an  act  adopted  Feb- 
ruary 4,  1887,  entitled  "An  Act  to  Regulate  Commerce."  This 
Commission  has  jurisdiction  over  complaints,  and  after  a  hear- 
ing may  determine  and  prescribe  reasonable  rates,  regulations, 
and  practices,  and  may  also  order  reparation  to  shippers  who 
have  been  damaged  and  who  have  brought  action.  It  may 
order  a  carrier  to  stop  discrimination  or  preference  of  one 
bailor  over  another,  and  it  may  institute  and  carry  on  pro- 
ceedings for  the  enforcement  of  the  law,  and  may  inquire  into 
the  business  of  all  common  carriers,  subject  to  the  provisions 
of  the  regulating  statutes,  and  it  may  from  time  to  time  inspect 
the  accounts  and  records  of  common  carriers.  Common  car- 
riers must  file  annual  reports  with  the  Commission  and  any 
others  that  may  be  required.  The  authority  of  Congress  to 
pass  this  act  is  based  on  that  clause  in  the  Constitution  which 
provides  tjiat  "Congress  shall  have  power  to  regulate  com- 
merce with  foreign  nations  and  among  the  several  states  and 
with  the  Indian  tribes." 


§  556.    Bills  of  Lading 

A  bill  of  lading  is  the  written  receipt  given  by  the  carrier 
to  the  bailor  for  goods  received  by  him  to  be  carried,  and 
is  signed  by  some  responsible  agent  or  member  of  the  com- 
pany. The  laws  governing  the  transfer  and  issuance  of  bills 
of  lading  and  the  responsibilities  of  shippers  and  carriers  are 


ti 


1 .1 


I    t 


\\  11 


j    I 


63a 


BAILMENTS  AND  COMMON  CAR^IfeRS 


now  embodied  in  a  Uniform  Bills  of  Lading  Act  which  has 
been  adopted  by  the  following  states  and  territories: 


Alaska 
California 
Connecticut 
Idaho 

Maryland 
Massachusetts 
Michigan 
Minnesota 

Ohio 

Pennsylvania 
Rhode  Island 
Vermont 

Illinois 

Iowa 
Louisiana 

Missouri 

New  Hampshire 

New  York 

Washington 
Wisconsin 

Maine 

North  Carolina 

This  act  calls  for  a  standard  bill  of  lading  as  regards  size 
and  form.*  The  advantage  is  that  shippers  in  the  states  having 
this  standard  form  need  not  scan  each  form  to  find  out 
whether  or  not  it  contains  a  new  requirement  or  responsibility. 
Bills  of  lading  have  a  two-fold  character,  being  compounded 
of  a  receipt  and  a  contract.* 

Bills  of  lading  are  spoken  of  as  negotiable  instruments. 
The  word  quasi-negotiable  is  sometimes  used  and  is  per- 
haps more  accurate  than  the  first  naming.  A  mere  indorse- 
ment, however,  without  a  delivery  will  not  constitute  a  trans- 
fer. The  mere  delivery  of  a  bill  of  lading  without  a  written 
indorsement,  if  made  with  the  intention  of  passing  title  to  the 
goods,  is  sufficient  to  effect  that  purpose,  even  though  the 
instrument  contains  no  words  of  negotiability. 

A  bill  of  lading  represents  the  goods  therein  receipted  for 
only  during  their  transit,  and  until  they  are  completely  de- 
livered to  the  person  entitled  to  them.  The  transfer  of  a  bill 
of  lading  by  someone  in  possession  of  it  can  give  no  better 
title  than  would  the  transfer  of  the  property  itself  by  the  same 
person. 

A  "clean"  bill  of  lading  is  one  issued  for  the  transportation 

»  Sec  Chapter  CX. 

'  Schauler  on  Bailments,  Sec.  47$. 


COMMON  CARRIERS 


633 


of  goods  by  water,  which  is  silent  as  to  the  method  of  carrying 
the  goods.  A  "clean"  bill  of  lading  imports  that  the  goods 
are  to  be  carried  under  deck  and  has  the  same  force  as  an 
express  agreement  to  that  effect. 

A  ship's  bill  of  lading  is  usually  drawn  in  triplicate.  One 
copy  is  generally  sent  to  the  consignee  by  the  ship  which 
carries  the  goods,  a  second  is  sent  to  him  by  another  conveyance, 
and  a  third  is  kept  by  the  merchant  or  shipper.  These  three 
are,  however,  but  one  bill  of  lading.  If  the  copy  held  by 
the  vessel,  or  "ship's  bill"  as  it  is  commonly  called,  is  different 
from  those  delivered,  the  latter  must  be  considered  as  the 
true  evidence  of  the  contract. 

Bills  of  lading  frequently  have  conditions  or  qualifications 
written  on  them  which  limit  the  carrier  in  some  manner  or 
which  place  a  certain  amount  of  liability  on  the  shipper.  It 
is  the  duty  of  the  shipper  to  examine  carefully  the  bill  of 
lading  before  signing,  since  once  signed  he  cannot  refuse  to 
be  bound  by  any  or  all  of  the  qualifications  by  saying  that 
he  did  not  understand  or  know  that  they  were  on  the  bill  of 
lading. 

§  557*    Carriers  of  Passengers 

A  carrier  of  passengers  is  not  held  to  the  degree  of  liability 
that  a  carrier  of  goods  is,  for  the  reason  that  passengers  are 
supposed  to  be  able  to  care  for  themselves.  The  carrier,  also, 
has  not  the  same  right  of  control  over  passengers  that  he 
has  over  goods.  He  is  not  responsible  for  the  act  of  God 
or  of  a  public  enemy;  but  he  must  use  the  greatest  possible 
care  and  vigilance  at  all  times.  Where  a  passenger  is  primarily 
negligent  or  the  passenger  and  the  carrier  are  both  negligent, 
the  carrier  is  excused  from  liability. 

The  payment  of  fare  is  not  necessary  to  make  one  a 
passenger,  and  policemen  and  mailmen  or  other  persons  riding 
free  are  considered  as  passengers.    The  carrier  may  eject  a 


i 


634 


BAILMENTS  AND  COMMON  CARRIERS 


COMMON  CARRIERS 


635 


(t 


passenger  for  refusal  to  pay  fare,  drunkenness,  or  disorderly 
conduct,  but  the  ejecting  must  be  done  with  care  or  the  carrier 
will  become  liable  for  any  injury  occurring.  Where  a  pas- 
senger is  put  off  for  disorderly  conduct,  the  amount  of  his 
ticket  unused  must  be  returned  to  him. 

A  carrier  must  deliver  the  traveler's  baggage  at  the  end 
of  the  journey  unless  destroyed  by  inevitable  accident  or  a 
public  enemy,  and  if  he  delivers  it  to  the  wrong  person  on 
a  forged  order  he  will  be  responsible  for  its  value.  By  bag- 
gage is  meant  the  ordinary  and  reasonable  amount  of  clothing 
for  a  passenger  according  to  his  station  in  life,  and  such  other 
articles  as  are  carried  for  convenience,  comfort,  or  protection. 
A  distinction  is  made  between  baggage  that  is  in  custody  of 
the  carrier  and  hand-baggage  that  the  passenger  retains  in 
his  own  care.  The  carrier  is  only  liable  where  the  baggage 
is  in  its  custody.  Under  the  present  regulations  of  the  govern- 
ment, liability  is  limited  to  $100  unless  a  higher  value  is  stated 
and  a  special  charge  paid  for  the  assumption  of  the  extra 
risk.  Common  carriers  usually  try  to  limit  the  amount  of 
their  liability,  and  in  some  states  the  courts  permit  this  to  be 
done. 

In  most  cases  passengers  are  made  to  pay  in  advance,  but 
where  they  do  not  and  refuse  to  pay  at  the  end  of  the  trip 
the  carrier  has  a  lien  on  baggage  which  belongs  to  them,  but 
not  on  clothes  on  their  persons. 

§  558*    Telephone  and  Telegraph  Companies 

Telephone  and  telegraph  companies  are  not  common  car- 
riers but  are  regarded  as  quasi-public  servants,  held  to  serve 
the  public  without  discrimination,  and  held  responsible  as 
bailees  for  hire  and  not  as  carriers.  They  may  be  held  for 
losses  arising  from  failure  to  observe  the  most  exact  degree 
of  care,  or  for  the  least  negligence. 

A  statement  in  a  telegraph  blank  that  the  company  will  not 


be  liable  for  mistakes  is  against  public  policy  and  is  therefore 
void;  but  such  a  statement  may  diminish  the  amount  of  dam- 
ages to  some  extent,  though  not  if  the  mistake  arose  from 
culpable  negligence,  fraud,  or  misconduct. 


I. 
2. 


4. 


Review  Questions 

What  are  common  carriers? 

To  what  extent  is  a  common  carrier  liable  as  insurer?  State 
the  liability  of  a  common  carrier  at  common  law.  To  what 
extent  can  the  carrier  limit  his  liability  under  such  law? 

Distinguish  between  the  liability  of  a  common  carrier  for  goods 
received  by  it  for  transportation,  and  the  liability  of  a  person 
for  goods  deposited  with  him  for  safe-keeping. 

A  shipped  a  barrel  of  paint  via  the  New  York  Central.  It 
arrived  empty.    Can  A  recover?    What  might  affect  his  claim ? 

5.  B  owns  a  vessel  plying  regularly  between  two  ports  with  pas- 

sengers and  freight.     The  ship  is  destroyed  by  fire  at  sea. 
Is  B  liable  for  the  freight  lost  ? 

6.  When  are  freight  charges  payable  to  a  common  carrier? 

7.  What  is  carrier's  lien?    State  remedy  of  a  carrier  when  shipper 

fails  to  pay.    On  what  condition  only  may  a  lien  be  retained? 

8.  When  is  freight  considered  as  earned  by  carrier? 

9.  Does  a  carrier  waive  his  right  by  delivery  of  freight  to  con- 
signee before  payment? 

What  are  the  general  obligations  of  a  common  carrier  of  goods? 
Of  a  carrier  of  persons?  Why  is  there  any  difference  in 
the  liability? 

When  goods  are  ordered  of  a  New  York  corporation  by  a 
Chicago  business  house,  whose  agent  is  the  carrier?  Who 
can  bring  suit  if  the  goods  are  lost  in  transit? 

To  what  special  supervision,  if  any,  are  common  carriers  sub- 
jected? 

13.  Describe    the    Interstate    Commerce    Commission,    giving    its 

powers. 

14.  What  is  a  bill  of  lading?    To  what  extent  is  it  negotiable? 

15.  What  twofold  character  has  a  bill  of  lading? 


10. 


II. 


12. 


636 


BAILMENTS  AND  COMMON  CARRIERS 


I 


16.  As  between  the  ship-owner  and  the  shipper,  what  is  the  character 

of  the  bill  of  lading  in  respect  to  the  goods  received?  As 
between  the  ship-owner  and  an  assignee  of  the  bill  for  value  ? 

17.  A  ships  goods  on  a  bill  of  lading  which  has  references  to  a 

classification  under  which  the  goods  are  sent.  Goods  are 
destroyed  in  carrier's  possession.  Can  A  recover  full  value, 
claiming  ignorance  of  limited  liability  of  carrier? 

18.  Has  the  master  of  a  ship  the  power  to  bind  the  owner  by  having 

him  sign  a  bill  of  lading  before  the  goods  are  brought  on 
board  ?    Give  reasons  for  your  answer. 
Is  the  carrier  of  passengers  responsible  for  passengers'  baggage? 
What  is  baggage?    Would  a  jeweler's  samples  be  legal  bag- 
gage? 

What  is  the  rule  as  to  telephone  and  telegraph  companies?  Are 
telephone  and  telegraph  companies  common  carriers?  Can 
they  be  sued  for  negligence? 


19 


20. 


PART  XVII 


I 


l"ll 


PATENTS,  TRADE-MARKS.  AND 
COPYRIGHTS 


m 


Ml 


CHAPTER  LXXXVII 

PATENTS 


§  559.    Constitutional  Authority 

The  Congress  shall  have  power  ....  to  promote  the 
progress  of  Science  and  Useful  Arts,  by  securing  for  limited 
times  to  Authors  and  Inventors  the  exclusive  right  to  their 
respective  Writings  and  Discoveries.  (Art.  I,  Sec.  8,  Con- 
stitution of  the  United  States.) 

§  560.    Introductory 

A  United  States  patent  is  an  exclusive  privilege  given  by 
the  government  to  inventors  of  patentable  improvemeiits, 
whereby  the  inventor  or  his  assignee  has  the  sole  right  "to 
make,  to  use,  and  to  vend"  his  invention  in  this  country  for 
the  period  of  seventeen  years.  After  this  time  the  public  is 
free  to  use  it.  Since  1861  the  life  of  a  patent  may  not  be 
extended  without  a  special  act  of  Congress. 

Section  24  of  the  Rules  of  Practice  of  the  United  States 

Patent  Office  says: 

A  patent  may  be  obtained  by  any  person  who  has  in- 
vented or  discovered  any  new  or  useful  art,  machine,  manu- 
facture, or  composition  of  matter,  or  any  new  and  useful 
improvement  thereof,  not  known  or  used  by  others  in  this 
country  or  described  in  any  printed  publication  in  this  or 
any  foreign  country  before  his  invention  or  discovery  thereof, 
or  more  than  two  years  prior  to  his  application,  and  not 
patented  in  a  country  foreign  to  the  United  States  on  an 
application  filed  by  him  or  his  legal  representatives  or 
assigns  more  than  twelve  months  before  his  application  and 
not  in  public  use  or  on  sale  in  the  United  States  for  more 
than  two  years  prior  to  his  application,  unless  the  same  is 

639 


640  PATENTS,  TRADE-MARKS,  COPYRIGHTS 

proved  to  have  been  abandoned,  upon  payment  of  the  fees 
required  by  law  and  other  due  proceedings  had. 

When  filing  his  application  the  inventor  is  required  to 
swear  to  an  affidavit  consisting  of  most  of  the  statements 
above. 

§  561.    Who  May  Obtain  a  Patent 

Any  citizen  of  the  United  States  may  apply  to  the  United 
States  Patent  Office  for  a  patent.  An  ahen  may  apply  for 
a  patent  in  this  country,  stating  in  his  affidavit  that  he  is  an 
alien  and  of  what  country  he  is  a  subject.  When  the  patent 
is  granted,  the  party  to  whom  it  is  granted  is  termed  the 
"patentee/' 

During  the  late  war  no  enemy  aliens  applied  for  patents, 
but  those  who  already  had  patents  still  in  force  or  applications 
not  yet  allowed,  had  these  seized  by  the  Alien  Property  Cus- 
todian, who,  after  seizure,  granted  licenses  to  American  con- 
cerns to  take  these  patents  and  work  them. 

§  562.    What  Inventions  Arc  Patentable 

The  Patent  Office  has  always  provided  that  anything  to  be 
patentable  must  be:  (i)  an  invention,  (2)  new,  and  (3) 
useful. 

I.  The  Element  of  Invention,  Some  things  are  not 
patentable  because,  although  they  are  new  things,  they  are 
not  invented  things.  It  is  not  invention  to  produce  a  device 
or  process  which  any  skilful  mechanic  or  chemist  could 
produce  if  required ;  or  to  produce  an  article  diflFering  from 
an  old  thing  only  in  skilfulness  or  excellence  of  workmanship; 
or  to  substitute  superior  for  inferior  things;  or  to  enlarge 
and  strengthen  a  thing;  or  to  change  one  part  of  a  thing; 
or  to  duplicate  one  or  more  of  the  parts  of  a  machine;  or  to 
use  an  old  invention  or  process  for  a  new  purpose. 


PATENTS 


641 


2.  The  Element  of  Novelty.  An  invention  to  be  patent- 
able must  be  new.  If  the  alleged  invention  has  been  known 
before,  if  it  has  been  patented  in  another  country,  or  if  it 
has  been  described  in  any  book  published  in  any  language,  it 
cannot  be  patented  here. 

In  deciding  a  case  on  this  point  one  court  held  that: 

It  may  be  laid  down  as  a  general  rule,  though  perhaps 
not  an  invariable  one,  that  if  a  new  combination  and  arrange- 
ment of  known  elements  produce  a  new  and  beneficial  result, 
never  attained  before,  it  is  evidence  of  invention. 

3.  The  Element  of  Utility.  Another  requirement  of 
patentability  is  utility.  To  possess  this  quality,  a  thing  or  a 
process  must  be  capable  of  producing  a  result  and  the  result 
must  be  a  good  one.  Processes  and  devices  which  cannot  be 
used  to  perform  their  specified  functions  have  no  utility,  and 
therefore  patents  for  such  subjects  are  void.  This  rule  ap- 
plies even  to  cases  where,  by  merely  adding  new  elements  to 
useless  contrivances,  highly  useful  inventions  are  produced. 
Patents  are  not,  however,  held  void  for  want  of  utility  merely 
because  the  things  covered  by  them  perform  their  functions 
but  poorly. 

§  563.    What  Is  Unpatentable 

A  discovery  of  a  principle  cannot  be  patented.  The  use 
of  steam  to  move  a  piston,  the  use  of  electricity  to  transmit 
signals,  the  principle  of  the  internal  combustion  engine,  and 
the  use  of  aeroplanes  are  examples  of  most  valuable  principles 
that  are  unpatentable.  The  particular  device  used  by  each 
pioneer  inventor  could  be  patented  if  new  and  useful.  Morse 
could  patent  his  sounder  and  receiver  and  his  alphabet,  but 
if  another  inventor  could  have  invented  better  devices,  he 
might   have    superseded   the    Morse    system.      The   Wright 


^AZ 


PATENTS,  TRADE-BIARKS,  COPYRIGHTS 


PATENTS 


643 


it 


\m 


brothers  could  patent  their  own  aeroplanes  and  apparatus  but 
could  not  secure  a  monopoly  of  the  use  of  aeroplanes. 

Likewise  a  property  of  matter  cannot  be  patented  by  the 
first  man  who  chances  on  it 

A  result  cannot  be  patented,  though  the  device  to  produce 
the  result  may  be  patentable. 

An  aggregation  may  not  be  patented,  where  the  parts  are 
not  dependent  on  each  other.  The  combination  of  a  rubber 
tip  and  a  lead  pencil  was  held  not  patentable. 

In  like  manner,  the  new  use  of  an  old  invention,  changes 
in  form,  substitutions,  and  arrangements  are  not  patentable. 
Many  cases  are,  however,  uncertain  and  it  may  be  worth 
while,  in  some  such  cases,  to  go  to  the  expense  of  trying  to 
secure  patent  protection. 

The  sale  or  public  use  of  a  device  for  more  than  two  years 
before  patent  is  applied  for  may  bar  it  from  a  patent. 

§  564.    Procedure  to  Obtain  Patent 

An  applicant  may  prosecute  his  own  case  but  he  is  advised 
always  to  employ  an  attorney.  Great  care  should  be  taken 
in  selecting  a  patent  attorney,  for  contrary  to  general  belief 
it  is  not  easy  to  obtain  a  patent  now  and  a  great  deal  depends 
on  the  skill  of  the  attorney.  Years  ago  when  the  Patent  Office 
first  opened,  it  was  not  hard  to  obtain  a  patent,  for  the  field 
was  open  and  new  and  patentable  inventions  were  constantly 
being  made.  Now  practically  all  of  the  applications  are  for 
improvements  of  inventions  already  known,  and  only  a  very 
few  are  what  are  known  as  "basic  inventions."  For  this 
reason  a  great  deal  depends  on  the  attorney's  skill  in  writing 
the-  application. 

A  "caveat"  was  a  notice  filed  in  the  Patent  Office  that  the 
inventor  had  invented  a  certain  thing,  describing  die  article. 
This  prevented  the  granting  of  a  patent  to  another  for  the 
same  thing,  without  giving  the  first  man  an  opportunity  to 


establish  his  priority  of  invention.    This  method  of  caveat  is 
now  no  longer  in  use. 

Preliminary  Search.  It  is  prudent  to  pay  for  a  preliminary 
search.  More  than  a  million  patents  have  been  issued.  It 
is  always  possible  that  any  particular  device  has  already  been 
patented.  It  does  not  cost  much  to  have  a  preliminary  search 
made.  The  search  should  be  made  by  a  skilled  patent  attorney, 
to  have  any  value.  No  one  who  has  not  looked  into  the 
subject  can  realize  the  enormous  number  of  patented  inven- 
tions. 

Making  a  Model.  It  is  always  well  to  have  a  model  or  a 
specimen  of  the  article  to  be  patented.  After  the  attorney 
has  looked  this  over  and  heard  the  explanation  of  it,  he  can 
generally  tell  fairly  well  from  his  experience  and  knowledge 
of  the  art  whether  it  is  patentable.  If  he  considers  that  it 
may  be  old  he  advises  a  preliminary  examination. 

The  model  and  explanation  in  rough  form  are  then  sent  on 
to  the  attorney's  correspondent  in  Washington,  who  will  go 
to  the  Patent  Office  and  search  the  files  of  that  particular 
class  of  inventions.  He  finds  among  the  patents  that  have 
been  granted  those  that  are  most  like  the  one  to  be  applied 
for  and  forwards  copies  of  them  to  the  attorney.  If  the 
attorney  finds  that  the  prior  patents  are  so  close  as  to  be 
practically  duplicates,  he  will,  if  he  is  the  right  sort  of  at- 
torney, advise  against  proceeding  further. 

Preparing  the  Application.  If,  however,  the  old  patents 
do  not  cover  or  approximate  the  improvement,  the  attorney 
will  advise  his  client  to  proceed  and  will  prepare  the  application 
for  the  Patent  Office.  Generally  three  copies  of  the  papers 
are  prepared.  One  is  for  the  Patent  Office,  another  for  the 
attorney's  files,  and  a  third  for  the  inventor.  The  draftsman 
draws  the  model  in  as  many  views  as  he  thinks  necessary 
and  the  attorney  writes  out  the  necessary  specifications  from 
these  plans.     The  description  must  be  "in  such  full,  clear. 


644 


PATENTS,  TRADE-MARKS,  COPYRIGHTS 


PATENTS 


645 


I 


concise  and  exact  terms  as  to  enable  any  person  skilled  in  the 
art  or  science  to  which  it  pertains,'*  to  use  the  invention. 
Then  he  draws  up  formal  claims  for  all  that  his  client  can 
possibly  hope  to  cover.  When  sent  to  the  Patent  Office,  they 
must  be  accompanied  by  the  government  filing  fee  of  $15. 
It  is  in  drawing  these  claims  broadly  and  inclusively  that  the 
patent  attorney  shows  his  skill.  The  inventor  swears  to  these 
and  to  the  affidavit  before  mentioned,  and  the  papers  are  ready 
for  filing  in  Washington. 

The  writing  of  claims  for  a  patent  is  an  art  in  itself. 

"A  claim  covers  and  secures  a  process,  machine,  a  manufac- 

ture,  or  a  composition  of  matter,  and  never  the  function  or 

result  of  either."    It  requires  much  information,  intellect,  and 

practice  to  know  how  much  to  claim  in  an  invention,  and 

to  make  a  clear,  concise  statement  where  every  word  must 

do  its  broadest  duty.    Where  a  description  sets  out  an  entire 

machine,  for  example,  a  claim  may  be  made  for  a  machine 

as  a  whole,  but  it  is  wiser  and  safer  to  pick  out  the  really 

new  parts  of  the  machine,  parts  which  you  are  particularly 

desirous  of  not  having  infringed,  and  claim  these  particular 

parts.     The  claim  for  the  whole  may,  of  course,  be  put  in 

the  application,  for  an  applicant  may  have  as  many  claims 

as  the  attorney  desires  or  thinks  necessary. 

§  565.    Procedure  in  the  Patent  Office 

When  the  papers  are  received  at  the  Patent  Office,  they 
are  looked  over  quickly  to  see  that  the  signatures  of  inventor, 
witnesses,  and  notary  public  are  all  properly  affixed,  and  if  no 
omission  appears,  the  matter  is  turned  over  to  the  examiners 
for  that  class  of  article.  These  examiners  are  known  as 
primary  examiners.  The  inventor  or  his  attorney  is  sent  a 
filing  receipt  which  records  what  class  the  application  is  in 
and  the  application  number  and  the  filing  date.    This  number 


and  date  must  be  mentioned  in  all  subsequent  correspondence 
as  it  helps  the  examiner  to  find  that  particular  case. 

The  application  then  waits  its  turn  for  examination.  The 
length  of  time  before  the  inventor  receives  a  statement  depends 
on  the  number  of  cases  ahead  of  it  in  that  class  and  also  upon 
the  number  of  examiners  there  are  to  do  the  work.  During 
the  war  so  many  of  the  examiners  left  to  join  the  army  that 
work  in  some  classes  was  as  much  as  four  or  five  months 
behindhand.    Usually,  however,  the  case  should  be  reached  in 

about  a  month. 

If  the  examiner  finds,  after  looking  over  the  case,  that 
there  are  claims  allowed  in  other  patents  which  conflict  with 
the  application,  or  that  there  are  errors  in  writing,  spelling, 
etc.,  he  will  write  a  statement  to  that  effect,  giving  his  reasons 
for  rejecting  the  case.     These  statements  are  called  "office 

letters." 

The  attorney  will  then  make  an  amendment  and  also  reply 
with  an  argument  showing  why  the  claims  in  the  prior  patents 
cited  do  not  anticipate  the  pending  case.  Probably  more  than 
one  of  these  letters  will  be  written  before  final  action  is  taken 
by  the  examiner. 

A  claim  in  order  to  be  held  must  be  able  to  stand  up 
under  the  separate  tests  of:  (i)  invention,  (2)  novelty,  and 
(3)  utility.  Besides  these  three  important  elements  the  claims 
must  be  specific,  so  that  a  person  reading  them  will  have  a 
clear  and  satisfying  idea  of  what  the  inventor  has  accom- 
plished. When  claims  are  rejected  it  is  for  the  lack  of  either 
one  or  another  of  these  elements,  and  therefore  in  amending 
the  claims  the  lacking  or  weak  element  should  be  put  in  or 
strengthened  as  the  case  may  be. 

§  566.    Interference  Proceedings 

If  it  happens  that  two  or  more  applications  practically 
duplicating  each  other  are  pending  allowance  together,  the 


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examiner  declares  an  interference.  The  attorney  for  each 
party  confers  with  his  client  and  affidavits  are  written  and 
sworn  to  stating  when  the  idea  of  the  invention  was  first 
conceived,  when  a  model  was  first  made  and  giving  various 
other  facts  which  will  help  determine  priority.  These  are 
then  sent  to  the  Patent  Office,  and  a  notice  of  hearing  is  sent 
to  the  attorneys.  At  this  hearing  or  trial  it  is  established 
which  of  the  parties  first  thought  of  the  device  and  worked 
out  the  first  model.  The  winning  party  in  the  interference 
then  proceeds  with  his  application,  while  the  losing  party  or 
parties  have  to  abandon  their  cases.  An  interference  may 
also  be  declared  where  one  of  the  parties  has  already  had  a 
patent  granted,  then  if  the  applicant  can  prove  that  he  was  the 
prior  inventor  a  patent  will  be  issued  to  him  also,  as  the 
Gnnmissioner  of  Patents  has  no  power  to  cancel  a  patent. 

Proof  of  Priority.  In  order  to  prove  prior  invention,  it  is 
necessary  that  an  inventor  shall  have  at  least  one  witness 
other  than  himself.  It  is  prudent  to  show  the  first  rough 
sketches  of  a  new  invention  to  two  friends  who  are  not  in- 
terested in  the  patent.  These  persons  should  sign  their  names 
as  witnesses  and  note  the  date  on  the  sketch. 

Then,  if  an  interference  arises  later,  the  inventor  will  have 
written  proof  of  the  time  when  he  really  made  the  invention. 
If  as  he  goes  on  with  the  work,  he  makes  material  changes 
and  improvements,  each  of  these  should  be  evidenced  as  to 
date  in  the  same  way.  Many  an  inventor  has  lost  out  because 
his  only  proof  was  his  own  unsupported  testimony,  and  his 
own  uncertain  recollection  of  the  date. 

§'567.    Final  Decision 

When  the  examiner  thinks  that  the  application  is  in  condi- 
tion for  allowance,  notice  of  this  is  sent  to  the  applicant's 
attorney.  If,  however,  the  examiner  feels  that  the  invention 
will  never  be  patentable,  he  tmally  rejects  the  application  by 


notice.  If  the  applicant  is  willing  to  spend  a  little  more  money 
and  the  attorney  thinks  it  worth  while,  an  appeal  may  be  made 
to  the  Board  of  Examiners-in-Chief.  If  the  result  of  this 
is  still  unsatisfactory,  he  may  appeal  to  the  Commissioner  of 
Patents  and  finally  to  the  Court  of  Appeals  for  the  District  of 
Columbia. 

§  568.    Government  Fees  and  Grant 

Aside  from  the  attorney's  fee  there  are  also  government 
fees.  The  first  one  is  the  filing  fee  of  $15  which 
must  be  sent  along  with  the  papers  when  they  are  first  filed. 
The  notice  of  allowance  sent  to  the  attorney  states  that  the 
final  government  fee  of  $20  must  be  paid  within  six  months 
from  the  date  of  allowance  or  the  application  will  lapse.  The 
final  fee  may  be  paid  as  soon  as  the  applicant  wishes,  and 
just  about  one  month  from  the  time  of  payment  the  original 
patent  is  issued.  This  means  that  the  inventor  has  the 
privilege  of  working  that  patent  for  seventeen  years  from  the 
date  of  the  issue  of  the  patent,  after  which  time  it  is  open 
to  the  public  for  use.  This  official  instrument  is  called  "letters 
patent"  and  consists  of  a  grant,  specification,  claims,  and 
drawing,  bound  together  and  stamped  with  the  Patent  Office 
seal. 

§  569.    Marking  a  Patented  Article 

Before  the  grant  of  a  patent  is  given  by  the  Patent  Office, 
the  inventor  or  the  owner  of  an  article  on  which  a  patent  is 
pending,  would  do  well  to  mark  on  the  article  "Patent  Pend- 
ing." This  gives  notice  to  the  public  that  an  application  has 
been  filed,  and  therefore  if  anyone  else  has  been  working  upon 
the  same  invention  he  would  probably  have  an  interference 
proceeding  on  his  hands  at  the  very  beginning.  After  the 
grant  has  been  allowed,  the  owner  or  inventor  of  the  article 


1 

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must  place  on  the  article  patented  the  words  "Patented, 
19—1"  or  words  or  abbreviations  to  that  effect. 


§  570.    Design  Patents 

A  design  patent  may  be  obtained  by  anyone  who  has 
invented  a  new,  original,  and  ornamental  design  for  an  article 
of  manufacture.  The  affidavit  sworn  to  by  the  applicant  con- 
tains the  same  statements  as  the  affidavit  for  a  patent. 

Patents  for  designs  are  granted  for  the  term  of  three  and 
one-half  years,  or  for  seven  years,  or  for  fourteen  years. 
Where  the  applicant  has  requested  that  the  patent  issue  for 
one  of  the  shorter  terms,  he  may  always,  upon  payment  of 
the  additional  fee,  amend  his  application  by  requesting  a  longer 
term. 

The  proceedings  in  design  applications  are  substantially 
the  same  as  in  applications  for  patents.  The  following  order 
should  be  kept  in  making  a  design  patent  application: 

1.  Preamble,  stating  name  and  residence  of  the  ap- 

plicant, title  of  the  design,  and  name  of  the  article 
for  which  the  design  has  been  invented. 

2.  Description  of  the  figure  or  figures  of  the  drawing. 

3.  Claim. 

4.  Signature  of  applicant. 

When  a  sufficiently  clear  representation  of  the  design  can 
be  made  by  a  drawing,  a  model  will  not  be  required.  The 
drawing  must  conform  to  the  rules  for  drawings  of  mechanical 
inventions. 

§  571.    Foreign  Patents 

If  a  foreign  application  is  to  be  made  on  the  same  inven- 
tion, it  must  be  filed  in  the  foreign  country  before  the  United 
States  patent  issues.  And  likewise  if  a  foreigner  desires  a 
United  States  grant  after  having  patented  an  invention  in  his 


country,  the  application  must  be  filed  here   within  twelve 
months  from  the  filing  date  of  the  foreign  application. 

In  most  foreign  countries,  annual  payments  increasing 
from  year  to  year  are  required.  After  a  few  years,  unless  the 
patents  are  worked  profitably,  these  payments  become  ver>' 
onerous.  Also  the  patents  must  be  worked  within  two  to  three 
years  in  the  country  granting  the  patent.  American  inventors 
have  sunk  much  money  in  trying  to  protect  patents  in  foreign 
countries. 

§  572.    Assignments  and  Licenses 

The  owner  of  a  patent  or  design  patent,  or  the  applicant 
for  a  grant,  may  assign  all  or  part  of  his  interest  to  another. 
As  in  the  case  of  a  contract,  good  and  sufficient  consideration 
must  be  given  in  exchange  for  this.  An  assignment  may  be 
made  at  any  time  from  the  filing  of  the  application  to  the 
end  of  the  seventeen-year  grant.  It  must  be  filed  in  the  Patent 
Office.  The  assignment  states  the  name  of  the  patentee,  the 
number  and  date  of  the  patent,  or  of  the  application,  the 
consideration  for  the  assignment,  the  name  of  the  assignee, 
the  date,  the  signature  of  the  patentee,  and  the  verification 
of  witnesses. 

Once,  however,  an  assignment  is  made,  the  control  of  the 
patent  is  no  longer  in  the  patentee.  After  an  assignment  of 
an  interest  in  a  patent,  the  owner  also  retaining  an  interest, 
each  co-owner  has  an  equal  right  and  anyone  of  the  co-owners 
may  bring  a  suit  for  infringement.  Each  co-owner  can  grant 
licenses  and  shop  rights. 

A  patentee  may  grant  a  license  to  someone  to  manufacture 
and  sell  the  patented  article,  but  this  does  not  amount  to  an 
assignment.  The  license  form  states  the  name  of  the  patentee, 
the  number  and  date  of  the  patent  or  application,  the  length 
of  time  for  which  the  license  is  granted,  the  date,  the  signa- 
tures of  the  patentee  and  witnesses.    A  shop  right  is  a  right 


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given  by  the  patentee  to  a  shop  or  factory  to  manufacture 
and  sell  that  article  in  a  limited  locality  only.  In  other  words, 
a  shop  right  is  a  restricted  license. 

§  573'    Joint  Inventors 

Joint  inventors  are  entitled  to  a  joint  patent;  neither  of 
them  alone  can  obtain  a  patent  for  an  invention  jointly  in- 
vented, and  neither  of  them  can  dispose  of  the  patent  or  assign 
the  patent  or  grant  a  license  without  the  consent  of  the  other. 

§  574.    Infringements 

An  infringement  is  the  unlawful  manufacture,  use,  or  sale 
of  a  patented  or  copyrighted  article. 

In  order  to  have  a  true  infringement  of  a  patent,  the 
so-called  infringing  article  must  be  equivalent  to  the  invention. 

In  infringements  of  a  process  the  courts  have  held  that: 

Whatever  likeness  may  appear  between  the  product  of 
the  process  described  in  the  patent  and  the  article  made  by 
the  defendant,  their  identity  is  not  established  unless  it  is 
shown  that  they  are  made  by  the  same  process. 

A  patent  for  a  machine  or  manufacture  is  infringed  by 
him  who,  without  ownership  or  license,  makes,  or  uses,  or 
sells  any  specimen  of  the  thing  covered  by  any  claim  of  that 
patent.  It  is  not  an  infringement  of  a  patent  to  make,  use, 
or  sell  any  specimen  of  any  invention  described  but  not 
claimed  therein ;  because  a  patent  covers  only  what  it  claims.* 

Substitution  of  an  equivalent  for  an  ingredient  of  some 
combination  claimed  in  a  patent  will  not  prevent  a  charge 
of  infringement;  but  the  substitution  of  something  not  an 
equivalent  will  prevent  infringement. 

If  anyone  accomplishes  the  result  attained  by  a  patented 
mechanism  by  means  substantially  different  from  those  of  the 
patent,  he  does  not  infringe.     If  the  mode  of  operation  of 

*  See  Walker  on  Patents. 


the  new  mechanism  is  substantially  different  from  the  mode 
of  operation  covered  by  the  claims  allowed  in  the  patent,  there 
is  no  infringement. 

The  subject  of  infringement  is  much  too  large  to  be  dis- 
cussed here,  and  it  is  weU  to  take  the  matter  up  with  the 
attorney  who  obtained  the  patent  immediately  upon  discovery 
of  an  infringing  article. 

§  575.    Official  Publication 

The  Official  Gazette  is  a  magazine  published  by  the  Patent 
Office  each  week.  It  contains  sketches  and  short  descriptions 
of  all  patents  issued  during  the  week  prior  to  publication, 
including  design  patents  and  trade-marks.  Anyone  may  sub- 
scribe for  this  by  the  year  or  purchase  single  copies  by  writing 
to  the  Superintendent  of  Public  Documents,  Government 
Printing  Office,  Washington,  D.  C. 

§  576.    Practical  Information 

Americans  are  naturally  inventive  and  from  time  to  time 
wonderful  inventions  have  been  made  and  will  be  made.  Most 
men,  however,  who  invent,  who  back  inventors,  or  subscribe 
to  stock  in  companies  to  exploit  new  inventions  lose  whatever 
time  and  money  they  spend  in  this  way.  It  has  been  roughly 
estimated  that  1,000  patents  are  granted  each  week  and  that 
2,000  applications  are  refused.  Out  of  all  these  new  devices, 
it  is  probable  that  I  per  cent  are  profitable  to  the  inventors 
and  their  backers.  If  anyone  is  curious  along  this  line  let 
him  spend  some  time  reading  the  files  of  the  Official  Gazette 
and  see  the  enormous  number  of  futile  and  forgotten  inven- 
tions. 

The  Value  of  Inventions,  Few  people  have  any  real  idea 
of  the  chances  against  the  financial  success  of  a  new  invention. 
In  most  cases  the  invention  has  been  anticipated  and  no  patent 
will  be  granted.     If  a  patent  is  granted,  it  is  then  in  shape 


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to  sell  or  litigate.  To  exploit  a  patent  is  in  most  cases  a 
formidable  undertaking.  In  a  few  cases  a  sale  can  be  made 
at  a  fair  price  to  some  reliable  concern.  Usually  the  inventor 
offers  it  in  vain,  then  after  a  time  he  becomes  discouraged  and 
lets  it  alone.  This  is  the  fate  of  most  inventions  that  cumber 
the  files  of  the  Patent  Office.  Sometimes,  the  inventor  will 
work  the  rest  of  his  life  trying  to  get  someone  to  take  up  his 
invention.  Many  times  he  will  go  in  with  promoters  and 
organize  a  company  to  "put  it  on  the  market."  Sometimes 
by  this  plan  he  is  frozen  out  and  becomes  an  embittered  man 
for  the  rest  of  his  days.  Other  times  a  lot  of  credulous  people 
are  persuaded  to  take  stock  and  they  lose  what  they  put  in. 

It  is  customary  to  beguile  inventors  and  investors  with 
wonderful  tales  of  the  fortunes  made  by  those  who  backed 
up  the  Bell  telephone  and  a  few  other  remarkable  inventions. 
Less  is  said  of  the  thousands  who  have  invested  hard-earned 
savings  in  unsuccessful  inventions. 

Few  inventions  are  valuable.  Of  those  that  are  valuable, 
few  are  handled  so  as  to  profit  those  who  finance  them.  It  is 
usually  a  long  and  difficult  process  to  bring  an  invention  to 
a  profit-making  basis  and  most  inventions  never  reach  this 
point 


PATENTS 


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What  is  an  interference?  What  is  the  procedure  in  such  cases? 
What  right  of  appeal  has  an  inventor  whose  claim  is  rejected? 
What  are  the  government  fees?    How  should  a  patented  article 

be  marked? 
What  is  a  design  patent?    How  long  does  a  design  patent  run? 
What  must  be  done  to  secure  a  foreign  patent  ? 
What  is  an  assignment?     What  is  the  effect  of  assigning  a 

one-half  interest  in  a  patent? 
What  is  a  license?    What  is  a  shop  right? 
13.    What  are  the  rights  of  joint  inventors? 

14!    What  is  infringement?    What  is  the  remedy  in  case  of  infringe- 
ment? 
15.    How  may  a  patent  right  be  lost? 


7- 
8. 

9. 
10. 

II. 
12. 


I 


I. 

2. 


Review  Questions 


Who  grants  patents?    By  what  authority? 

What  is  a  patent?    How  long  does  it  last?    Who  can  secure 
a  patent?    What  may  be  patented?    What  are  the  thiee  ele- 
ments of  patentability? 
J.    What  things  are  unpatentable?    In  each  case,  why? 

4.  What  are  the  steps  to  obtain  a  patent?    What  is  the  object  of 

a  preliminary  search?     What  arc  the   features  of  an  ap- 
plication ? 

5.  What  is  the  procedure  in  the  Patent  Office?    What  is  meant  by 

a  caveat? 


TRADE-MARKS 


655 


CHAPTER  LXXXVIII 

TRADE-MARKS 

§577.    Description 

A  trade-mark  is  a  distinguishing  mark,  device,  or  symbol 
used  by  a  manufacturer  or  a  merchant  on  his  goods  to  identify 
them  or  advertise  them  as  his  goods  in  contradistinction  to 
the  goods  of  another.  Its  purpose  is  to  distinguish  or  set 
apart  one  man's  merchandise  from  that  of  another. 

"The  function  of  a  trade-mark  is  to  point  out  the  maker 
or  vendor  of  the  article  to  which  it  is  attached.  ...  It  must 
be  designed  to  indicate  the  owner  or  producer  of  the  com- 
modity, and  to  distinguish  it  from  like  articles  made  by 
others."  ^ 

§  578.    Common  Law  Trade-Marks 

An  exclusive  right  to  a  trade-mark  is  given  by  the  common 
law,  and  it  is  no  new  thing  but  has  existed  for  many  years. 
A  trade-mark  is  acquired  by  the  one  who  first  adopts  it,  uses 
it  on  his  goods,  and  sells  goods  with  the  trade-mark  attached. 
Any  person,  citizen  or  alien,  may  by  this  method  acquire  the 
right  to  the  use  of  a  trade-mark.  The  test  of  right  is  priority 
in  use.  The  first  user  has  the  better  right.  It  is  not  always 
easy  after  many  years  to  bring  evidence  to  show  when  use 
of  a  particular  trade-mark  first  began. 

Within  the  last  fifty  years  the  federal  government  has 
passed  laws  for  registering  trade-marks.  These  laws  do  not 
give  the  right,  but  make  proof  of  the  right  easier  and  allow 
suits  against  infringers  always  to  be  brought  in  the  federal 
courts.     (See  §  574,  "Infringements.")    A  good  trade-mark 


*  ISO  U.  S.  463. 


should  be  attractive,  easy  to  remember,  and  must  be  different 
from  any  used  by  competitors.  So  much  do  trade-marks  differ 
in  appeal  and  effect  that  care  in  selecting  will  add  many  dollars 
to  sales. 

§579.    Essential  Elements  of  a  Trade-Mark 

A  trade-mark  that  can  be  acquired  as  an  exclusive  mark 
must  have  certain  essential  elements  as  follows : 

1.  The  mark  should  be  distinctive,  but  no  ordinary 
descriptive  word  may  be  used.  The  word  "Spearmint"  as 
applied  to  chewing-gum  could  not  give  an  exclusive  right.  A 
geographic  word  cannot  be  used.  "Elgin"  as  applied  to 
watches  could  not  be  protected  as  a  trade-mark.  A  generic 
name  as  "Holstein  Butter"  could  not  be  used.  A  surname 
cannot  be  used,  as  "Robinson's  Cough  Drops."  The  use  of 
all  these  terms  which  cannot  be  protected  as  trade-marks  may 
in  some  cases  be  protected  by  the  courts  in  other  ways.  (See 
Chapter  XC.) 

2.  A  trade-mark  is  adopted  by  being  attached  to  the  goods 
or  the  packages.  A  trade-name  used  only  in  advertising  or 
in  signs  on  a  place  of  business  and  not  attached  to  the  articles 
or  their  containing  packages  cannot  be  claimed  as  a  trade- 
mark. 

3.  Priority  in  use  is  the  sole  method  of  acquiring  the 
right  to  a  trade-mark.  Even  under  registry  laws,  priority  in 
use  must  precede  the  right  to  register.  To  use  a  trade-mark 
means  to  attach  it  to  goods  and  then  sell  the  goods  with  the 
trade-mark  attached. 

4.  The  business  must,  of  course,  be  a  lawful  business. 
Where  all  traffic  in  intoxicating  liquors  is  forbidden,  no  man 
could  secure  rights  to  a  trade-mark  on  wines  and  brandy. 

5.  If  the  articles  to  which  the  trade-mark  is  attached  be 
fraudulent  or  if  their  sale  involves  a  fraud  upon  the  public, 
the  right  cannot  be  enforced  in  the  courts. 


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656  PATENTS,  TRADE-MARKS,  COPYRIGHTS 

§  580.    What  May  Not  be  Used 

I.  Geographical  Names.  No  one  has  the  right  to  the 
sole  use  of  the  name  of  a  locality.  It  is  not  distinctive,  because 
anyone  else  may  use  it.  Sometimes  the  name  of  a  foreign 
place  may  be  used  when  its  use  is  not  intended  to  deceive 
anyone  as  to  its  origin,  as  "Vienna,"  a  trade-mark  for  bread 
made  in  this  country. 

2.  Patented  Inventions,  When  the  Singer  patents  ex- 
pired the  company  that  owned  the  patents  claimed  the  word 
"Smger"  as  a  trade-mark.  The  courts  held  that  when  a  patent 
expires,  the  exclusive  right  to  the  name  could  not  be  continued 
and  that  anyone  making  a  sewing  machine  under  the  expired 
patents  could  call  it  a  "Singer  Sewing  Machine." 

3.  Descriptive  Names.  These  may  not  be  used  because 
they  are  not  distinctive.  "Rubberset"  brushes  is  descriptive 
and  therefore  not  good  as  a  trade-mark.  'Tvory"  is  a  good 
trade-mark  for  soap  because  it  is  not  descriptive,  but  would 
not  be  allowed  for  teething-rings,  because  in  the  latter  case 
It  would  be  either  descriptive  or  deceptive. 

4.  Personal  Names.  In  many  cases  articles  come  to  be 
known  by  the  names  of  the  manufacturer,  as  "Stetson  Hats  " 
But  such  a  name  gives  no  exclusive  right  and  another  man  of 
the  same  name  could  come  later,  make  the  same  article  and 
attach  his  name.  So  many  men  named  Baker  have  started  as 
chocolate-makers,  that  the  owners  of  the  original  Baker's 
chocolate  have  had  much  costly  litigation  trying  to  enforce 
their  rights. 

S  Letters,  Numbers,  and  Marks.  These  may  be  used  if 
not  descriptive,  but  if  "A  No.  i"  has  a  meaning  in  the  partic- 
ular trade,  it  may  not  be  used  as  an  exclusive  trade-mark. 

6.  Any  Misleading  Name.  The  proprietor  of  a  laxative 
medicine  sold  widely  as  "California  Fig  Syrup"  could  not 
protect  the  name  because  it  was  not  fig  syrup  but  a  compound 
of  senna  that  he  sold.    Judge  Taft  said: 


TRADE-MARKS  657 

This  is  a  fraud  upon  the  public.  It  is  true  that  it  may 
be  a  harmless  humbug  to  palm  off  on  the  public  as  Syrup  of 
Figs  what  is  Syrup  of  Senna,  but  it  is  nevertheless  of  such 
a  character  that  a  Court  of  Equity  will  not  encourage  it  by 
extending  any  relief  to  the  person  who  seeks  to  protect  a 
business  which  is  most  different  and  is  dependent  upon  such 
deceit.^ 

"Gold  Medal"  where  no  gold  medal  has  been  awarded 
was  held  not  good.  Any  word  used  as  a  trade-mark  which 
gives  a  false  impression  as  to  the  quality,  origin,  or  ingredients 
of  the  commodity  will  not  give  exclusive  rights  to  the  user. 

§581.    What  Can  be  Used 

It  is  necessary  that  the  trade-mark  be  a  non-descriptive 
word  or  mark  or  picture.  Therefore  most  of  the  best  trade- 
marks consist  of  a  word  or  words  arbitrarily  made  or  applied. 
"Sapolio,"  "Kodak,"  and  "Domino"  applied  to  their  various 
articles  are  good  trade-marks. 

Any  picture,  insignia,  design,  or  mark  not  open  to  the 
objections  that  have  been  noted,  may  be  used  as  a  trade-mark. 
And  such  design  may  be  used  in  connection  with  a  word  or 
words.  When  a  man  wants  to  use  his  own  name,  he  may 
have  it  worked  out  in  unusual  or  fantastic  type.  The  name 
cannot  be  held,  but  the  style  and  design  will  be  a  valid  trade- 
mark. 

The  advertising  columns  of  our  magazines  are  full  of  the 
best  trade-marks  that  capable  advertising  men  can  devise.  The 
ideal  trade-mark  should  be  easy  to  remember,  simple  in  design, 
different  from  any  other,  capable  of  being  attached  to  the 
goods  or  their  containers,  if  possible  suggestive  of  high  quali- 
ties, and  not  open  to  any  of  the  objections  that  have  been 
mentioned  in  the  preceding  section. 


» Worden  v.  California  Fig  Syrup  Company,  187,  U.  S.  519. 


It 


658 


PATENTS,  TRADE-BIARKS,  COPYRIGHTS 


I  • 


I 


Ml 


III 


11! 


§  583.    The  Common  Law  Right 

Priority  in  use  is  the  origin  of  the  common  law  right  to 
the  ownership  of  a  trade-mark.  The  law  then  protects  the 
exclusive  right  and  no  other  man  will  be  allowed  to  use  the 
trade-mark  for  a  similar  commodity.    The  reason  is  twofold. 

First,  it  is  a  fraud  on  the  public  who  are  deceived  by  the 
deceptive  use  of  a  stolen  trade-mark.  The  public  are  to  be 
protected  from  what  is  an  obvious  fraud. 

Second,  it  is  a  wrong  to  the  man  who  owns  the  trade-mark 
and  by  costly  advertising  and  careful  manufacture  has  made 
it  valuable. 

The  owner  of  the  trade-mark  has  his  remedy  in  the  courts 
against  the  infringer.  He  may  enjoin  the  fraudulent  use  by 
suit  in  equity  and  he  may  also  sue  for  damages. 

§  583.  Trade-Marks  Arc  Not  Assignable  Apart  from  Business 
A  trade-mark  cannot  be  assigned  save  with  the  business 
or  manufacture  with  which  it  is  connected.  The  owner  of 
"Sunny  Jim"  as  a  trade-mark  for  a  breakfast  food  could  not 
sell  to  another  the  separate  right  to  use  the  trade-mark  on  a 
different  breakfast  food.  He  could  have  sold  the  whole  busi- 
ness including  the  trade-mark,  but  he  could  not  sell  the  trade- 
mark or  license  others  to  use  it,  as  is  done  with  patents.  A 
trade-mark  is  part  of  the  good-will  of  a  business  and  cannot 
be  separated  from  it. 

"A  trade-mark  is  analogous  to  the  good-will  of  a  business. 
Who  ever  heard  of  a  good-will  being  sold  to  one,  while  the 
original  owner  continues  the  business  as  before.?  The  good- 
will is  inseparable  from  the  business  itself."  ■ 

§  584.    Summary 

The  common  law  right  as  has  been  described  still  exists 
and  always  has  existed  everywhere  in  this  country.     In  the 

»  Bulte  ▼.  Iflehart  Bros.,  137  Fed.  494. 


TRADE-MARKS 


659 


next  chapter,  the  subject  of  registering  trade-marks  will  be 
treated.  Registry  laws  for  trade-marks  have  been  passed  in 
many  separate  states,  but  the  federal  law  permits  registration 
of  all  trade-marks  used  in  interstate  commerce.  As  anything 
worth  protecting  by  a  trade-mark  is  used  in  interstate  com- 
merce, practically  all  trade-marks  are  eligible  for  United  States 
registry,  and  our  modem  trade-mark  law  has  grown  up  around 
these  federal  laws  and  the  decisions  of  the  United  States 
courts  on  the  cases  that  have  come  up  under  them.  It  is 
always  to  be  remembered,  though,  that  the  common  law  right 
is  the  first,  and  that  registration  of  a  trade-mark  confers  no 
rights  or  privileges  against  the  common  law  owner  of  a  similar 
mark,  although  the  latter  mark  has  never  been  registered. 


I. 


Review  Questions 

What  is  the  object  of  a  trade-mark?  What  gives  an  exclusive 
right?  Does  registry  of  a  trade-mark  under  state  or  federal 
laws  give  any  better  right  than  does  use  to  a  trade-mark? 
What  things  are  gained  by  federal  registry? 

What  are  some  of  the  elements  that  make  a  good  trade-mark? 
How  is  a  trade-mark  adopted?  What  may  prevent  enforce- 
ment of  a  trade-mark? 

What  six  classes  of  words  cannot  be  used  for  trade-mark  pur- 
poses ?  '  What  is  the  reason  in  each  class  ? 

Name  a  dozen  trade-marks  that  have  impressed  you. 

5.  How  is  the  use  of  another's  trade-mark  a  double  wrong? 

6.  Why  cannot  a  trade-mark  be  assigned  apart  from  the  business 

to  which  it  belongs? 


2. 


3. 


4. 


Kill 


REGISTRATION  OF  TRADE-MARKS 


66 1 


CHAPTER  LXXXIX 

REGISTRATION  OF  TRADE-MARKS 

§585.     The  Federal  Trade-Mark  Law 

The  present  act  was  adopted  in  1905  and  provides  for  the 
registration  of  trade-marks  in  the  United  States  Patent  Office. 
The  object  of  the  federal  statutes  was  to  systematize  trade- 
mark procedure.  It  provides  definitely  for  the  protection  of 
all  trade-marks  that  were  protected  at  common  law  and  ex- 
tended this  protection  further  so  as  to  protect  some  cases  that 
the  common  law  excluded.  It  leaves  all  common  law  rights 
as  they  were,  for  the  act  states:  "Nothing  in  this  act  shall 
prevent,  lessen,  impeach  or  avoid  any  remedy  at  law  or  in 
equity  which  any  party  aggrieved  by  any  wrongful  use  of 
any  trade-mark  might  have  had  if  the  provisions  of  this 
chapter  had  not  been  enacted."  ^ 

It  lays  down  definite  rules  to  ascertain  the  validity  and 
eligibility  to  registration  of  trade-marks  in  use.  It  provides 
that  all  litigation  concerning  registered  trade-marks  may  be 
conducted  in  the  federal  courts.  It  is  necessary  to  prosecute 
infringers.  The  fact  of  registration  gives  a  public  record  and 
furnishes  prima  facie  evidence  of  the  date  when  the  right 
accrued. 

A  trade-mark  registration  is  granted  for  twenty  years  and 
00  payment  of  another  fee  it  may  be  renewed  for  a  like  period. 

§  SB6,    The  Ten- Year  Clause 

The  general  rules  as  to  eligibility  for  registration  are 
essentially  the  same  as  the  common  law  tests  for  validity  that 


have  been  given  in  the  preceding  chapter.  The  one  important 
exception  is  "the  ten-year  clause"  which  authorizes  the  regis- 
tration of  any  marks  "which  were  in  actual  and  exclusive  use" 
for  "ten  years  next  preceding  February  20,  1905."  This 
clause  allowed  many  marks,  not  eligible  under  the  common 
law,  to  be  registered,  and  thereafter  to  have  all  the  rights 
of  a  common  law  trade-mark.  Under  this  construction,  many 
descriptive,  geographical  and  proper  names  that  were  only 
trade-names  and  not  trade-marks,  have  become  statutory  trade- 
marks. A  proper  name  cannot,  it  is  true,  be  exclusively 
appropriated,  but  the  user  will  be  protected  against  any  use 
by  another  in  a  way  calculated  to  deceive  the  public. 

§  587.    Who  May  Register  a  Trade-Mark 

Section  16  of  the  Rules  Governing  Registration  of  Trade- 
marks under  the  Trade-marks  Act  says: 

A  trade-mark  may  be  registered  by  any  person,  firm,  cor- 
poration, or  association  domiciled  within  the  territory  of  the 
United  States,  or  residing  in  or  located  in  any  foreign  coun- 
try which  by  treaty,  convention,  or  law,  affords  similar 
privileges  to  the  citizens  of  the  United  States,  and  who  is 
the  owner  of  such  trade-mark,  and  uses  the  name  in  com- 
merce with  foreign  nations,  or  among  the  several  States,  or 
with  Indian  tribes,  upon  payment  of  the  fee  required  by  law 
and  other  due  proceedings  had. 

§588.    Procedure  for  Registration 

The  application  which  an  attorney  makes  for  a  trade-mark 
consists  of : 

1.  A  petition  requesting  registration. 

2.  A  statement,  specifying  name,  domicile,  location, 

and  citizenship  of  the  applicant,  etc. 

3.  A  declaration  or  oath  verifying  the  facts  in  the 

Statements, 


»^ 


*  See  S  23,  Act  of  1905. 


660 


^^2  PATENTS,  TRADE-BiARKS,  COPYRIGHTS 

4.  A  drawing  of  the  trade-mark. 

5.  Five  specimens  of  the  trade-mark,  or  facsimiles  if 

because  of  the  mode  of  applying  the  mark  to  the 
goods  specimens  cannot  be  furnished. 

6.  A  government  fee  of  $10. 

§589.    What  Wm  Bar  a  Trade-Mark 

No  mark  will  be  registered  by  the  United  States  if  the 
mark  consists  of  or  comprises  immoral  or  scandalous  matter- 
or  consists  of  the  flag  or  coat-of-arms  or  other  insignia  of 
the  Umted  States  or  any  simulation  thereof,  or  of  any  state 
or  municipality  of  a  foreign  nation,  or  of  any  sign  that  has 
been  or  may  be  adopted  by  any  fraternal  society  as  its  em- 
blem,  or  any  trade-mark  which  is  identical  with  a  registered 
trade-mark  owned  by  another,  or  which  so  nearly  resembles 
a  registered  mark  owned  by  another  as  would  be  likely  to 
cause  confusion  or  mistake  in  the  mind  of  the  public » 

No  mark  that  consists  merely  of  the  name  of  the  person 
ftrm,  or  corporation,  will  be  registered  unless  in  some  par- 
ticular  or  distinctive  manner  or  with  a  picture.  No  descriptive 
or  geographical  name  or  term  will  be  registered.  No  portrait 
of  a  hving  person  may  be  registered  unless  widi  his  written 
consent.  The  ten-year  clause,  already  mentioned,  has  ad- 
mitted to  registry  many  exceptions  to  the  foregoing  rules. 

If  the  mark  is  thought  by  the  Patent  Office  to  be  registrable 
tfie  mark  will  be  published  in  the  Official  Gazette  at  least  once' 
This  pubhcation  will  be  thirty  days  or  more  prior  to  the  date 
of  registration,  and  if  no  notice  of  opposition  is  received  by 
the  Patent  Office,  the  certificate  of  registration  will  be  issued. 

§  590.    Opposition  to  Registration 

Any  person  who  believes  he  would  be  damaged  by  the 
registration  of  a  mark  may  oppose  the  same  by  filing  a  written 

» I  19.    Kules  r>veming  regirtrttion  of  trademarks.    Act  of  February  ,8,  ,909. 


REGISTRATION  OF  TRADE-MARKS 


663 


notice  of  opposition  within  thirty  days  after  the  publication 
of  the  mark  to  be  registered.  This  notice  must  be  accompanied 
by  the  proper  fee  of  $io. 

Also,  any  person  believing  himself  injured  by  the  registra- 
tion of  a  trade-mark  in  the  Patent  Office  may  at  any  later 
time  make  application  to  the  Commissioner  to  have  the  regis- 
tration cancelled. 

The  proceedings  on  an  opposition  and  on  applications  for 
cancellation  follow  as  nearly  as  possible  the  practice  in  inter- 
ference cases  in  the  Patent  Office. 

§  591.    Amendments,  Rejections,  and  Appeals 

Amendments,  office  letters,  and  interferences  occur  as  in 
patent  applications  and  after  an  applicant  has  had  his  trade- 
mark twice  rejected  by  the  examiner  for  the  same  reason,  he 
may  appeal  to  the  Commissioner  in  person  after  payment  of 
the  fee  required.  Upon  an  adverse  decision  of  the  Commis- 
sioner an  appeal  may  be  taken  to  the  Court  of  Appeals  for 
the  District  of  Columbia. 

§  592.    Certificate  of  Registration 

When  the  requirements  of  the  law  have  been  complied 
with,  and  the  office  thinks  a  trade-mark  registrable,  a  cer- 
tificate will  be  issued,  signed  by  the  Commissioner,  stating 
that  the  applicant  has  complied  with  the  law  and  stating  the 
date  and  the  number  of  his  trade-mark  registration.  The 
certificate  consists  of  a  drawing  of  the  mark  and  a  copy  of 
the  statement  and  declaration. 

A  certificate  remains  in  force  for  twenty  years  from  its 
date  of  registration,  except  that  if  a  trade-mark  has  been 
previously  registered  in  a  foreign  country  such  certificate  will 
cease  to  be  in  force  on  the  day  on  which  the  mark  ceases  to 
be  protected  in  such  foreign  country. 


664 


PATENTS,  TRADE-MARKS,  COPYRIGHTS 


§  593>    Assignments 

Subject  to  the  rule  that  a  trade-mark  can  be  sold  only 
with  the  business  as  part  of  the  good-will,  every  registered 
mark  and  every  mark  on  which  application  for  registration 
has  been  made  is  assignable.  Assignments  must  be  in  writing 
and  duly  acknowledged.  No  assignment  will  be  recorded 
unless  an  application  for  the  registration  of  the  mark  has 
first  been  filed  in  the  Patent  Office.  These  assignments  must 
contain  the  number  anc  the  filing  date  of  the  application.  A 
certificate  may  be  issued  to  an  assignee,  but  the  assignment 
must  first  be  recorded  in  the  Patent  Office. 

§  594-    Foreign  Registration 

In  the  United  States  no  one  can  register  a  trade-mark 
unless  he  has  used  it  in  interstate  commerce,  but  in  Japan, 
Mexico,  and  some  other  foreign  countries  anyone  by  paying 
the  fees  may  register  any  trade-mark.  In  consequence,  Ameri- 
can exporters  frequently  find  that  some  unscrupulous  person 
has  registered  trade-marks  that  they  have  used  for  years, 
and  that  they  cannot  sell  their  goods  in  the  country  until  they 
have  bought  out  the  pirate.  If  it  is  intended  to  export  goods, 
the  matter  of  having  the  trade-marks  registered  in  the  foreign 
market  should  be  looked  after  without  delay. 


I. 

2. 
3: 

4- 


Review  Questions 

What  was  the  object  of  the  Federal  Trade-mark  Law?    Where 

may  suit  be  brought  against  infringers? 
What  is  "the  ten-year  clause"? 
Who  may  register  a  trade-mark?     What  must  be  the  relation 

of  the  applicant  to  the  trade-mark  ?    What  is  the  requirement 

as  to  user? 

What  are  the  six  requisites  of  the  application^ 


5.     Name  four  of  the  things  that  will  bar  a  mark  from  registry? 


REGISTRATION  OF  TRADE-MARKS 


66s 


6. 


7- 

8. 

9- 
10. 


Who  may  oppose  registration?  How  would  he  Icnow  of  the 
application?  How  would  he  proceed?  After  thirty  days, 
what  may  anyone  who  is  aggrieved  do? 

What  rights  of  appeal  has  an  applicant? 

Who  grants  a  certificate  of  registration?    How  long  does  it  run? 

How  are  trade-marks  transferred? 

How  do  some  foreign  registration  laws  relating  to  trade-marks 
differ  from  ours?    What  is  the  result? 


TRADE-NAMES  AND  UNFAIR  COMPETITION         667 


CHAPTER  XC 

TRADE-NAMES  AND  UNFAIR  COMPETITION 

§595-    Unfair  Competition  Defined 

Certain  trade-names  cannot  be  claimed  as  trade-marks  nor 
can  they  be  registered  under  the  statutes.  Such  would  be  the 
case  with  all  proper,  descriptive,  or  geographical  names.  If 
a  baker  named  Cole  had  built  up  a  profitable  trade  in  bread 
in  a  particular  town,  selling  his  bread  as  "Cole's  Bread,"  and 
later,  a  corporation  was  organized  called  the  "Cole  Bakery 
Company"  and  they  made  and  sold  bread  in  that  locality, 
calling  their  product  "Cole's  Bread,"  the  original  builder  of 
the  business  would  have  no  redress  under  the  doctrine  of 
trade-marks.  He  cannot  secure  the  exclusive  use  of  a 
personal  name,  but  as  it  seemed  rankly  unjust  that  a  com- 
petitor should  take  advantage  of  such  a  situation,  the  courts 
invented  the  "doctrine  of  unfair  competition"  which  is  defined 
as  follows: 

"Unfair  competition  is  the  passing  off,  or  attempting  to 
pass  off  on  the  public  the  goods  and  business  of  one  as  being 
the  goods  and  business  of  another."  ^ 

This  doctrine  is  construed  broadly  and  covers  nearly  all 
the  cases  that  come  up  where  a  later  competitor  tries  to 
deceive  the  purchasing  public  by  imitating  the  names,  the 
package,  or  the  appearance  of  the  prior  dealer's  goods. 

Mr.  Justice  Brown  has  expressed  this  doctrine  as  follows: 

Rival  manufacturers  may  lawfully  compete  for  the  patron- 
age of  the  public  in  the  quality  and  the  price  of  their  goods, 
in  the  beauty  and  tastefulness  of  their  enclosing  packages 


and  in  the  extent  of  their  advertising,  and  in  the  employment 
of  agents,  but  they  have  no  right  by  imitative  devices  to 
beguile  the  public  into  buying  their  wares  under  the  impres- 
sion that  they  are  buying  those  of  their  rivals.^ 

§  596.    Trade-Names 

Names  used  in  trade  to  identify  the  owner  of  a  business, 
the  place  where  the  business  is  located,  or  the  kind  of  goods 
sold,  which  are  technically  not  trade-marks,  are  protected  by 
the  courts  as  trade-names.  Any  attempt  by  competitors  to 
use  them  or  to  imitate  them  is  branded  as  "unfair  competi- 


tion. 


»f 


Trade-names  are  secured  by  adoption  and  long  use,  and 
priority  is  the  test  of  ownership.  A  trade-mark  always  has 
to  be  attached  to  the  goods,  but  a  trade-name  used  as  a  sign 
or  in  advertising  will  be  protected  against  unfair  competition. 
The  name  of  a  hotel  will  be  protected  or  the  name  of  a  cor- 
poration. A  business  built  up  under  the  name  of  "Six 
Little  Tailors"  was  protected  against  unfair  competition  under 
the  name  of  "Six  Big  Tailors."  » 

§  597'     Secondary  Meaning 

If  a  word  not  eligible  for  trade-mark  use,  as  the  name 
of  the  maker,  is  used  for  a  long  time,  as  for  instance  in  the 
"Pears'  Soap"  advertising,  the  word  "Pears"  acquires  a  sec- 
ondary meaning;  that  is,  it  becomes  an  adjective  describing 
a  particular  kind  of  soap  and  the  court  will  protect  it  from 

infringers. 

A  word  that  describes  the  goods,  as  "Holeproof  Hosiery" 
or  "High  Standard  Varnish,"  or  that  gives  the  place  of  manu- 
facture, as  "Elgin  Watches,"  or  the  name  of  the  maker,  as 
"Baker's  Chocolate,"  may  not  be  eligible  to  registration  as  a 
trade-mark,  but  because  such  words  have  acquired  a  secondary 


•Sayre  v.  McGill  Ticket  Puncli  Co..  aao  Fed  771. 

666 


'Coats  V.  Merrick  Thread  Co..   149  U.  S.   $62. 
•Masslcr  v.  Jacobs,  65   111,   App.   ^7 J. 


668 


PATENTS,  TRADE-MARKS,  COPYRIGHTS 


meaning  in  connection  with  the  particular  goods,  the  courts 
wiU  not  allow  their  use  to  injure  those  who  have  used  them 
first  This  is  known  as  the  "doctrine  of  secondary  meaning  " 
Protection  is  accorded  against  unfair  dealing,  whether 
there  be  a  technical  trade-mark  or  not.  The  essence  of  the 
wrong  consists  in  the  sale  of  the  goods  of  one  manufacturer 
or  vendor  for  those  of  another."  * 

TTie  prohibition  against  the  use  of  a  word  of  this  kind 
that  has  acquired  a  secondary  meaning  is  not  absolute;  and 
If  the  word  can  be  used  so  that  it  does  not  injure  the  prior 
user,  the  courts  will  not  prevent  such  honest  use. 

§598.    Personal  and  Corponite  Names 

Personal  names  are  not  available  for  trade-marks,  and  no 
ocdusive  right  can  be  secured,  such  as  is  the  trade-mark 
nght  If,  however,  a  man  named  Rogers  makes  silverware 
and  attaches  his  name  to  his  goods  until  they  and  it  have 
acquired  wide  reputation,  he  will  be  protected  against  others 
of  the  same  name  who  try  to  trade  on  the  good  name  of  the 
ongmal  Rogers  for  silverware. 

The  Waterman  Pen  could  not  be  protected  as  a  trade-mark, 
but  when  one  of  its  employees  named  Waterman  left  and 
started  an  independent  business,  the  court  decided  that  his 
company  could  be  enjoined  from  using  the  word  "Waterman" 
at  all  unless  it  followed  the  legend  "Arthur  A.  Waterman  Co  " 
on  its  pens  with  the  words  "Not  connected  with  the  L  E 
Waterman  Co."  * 

The  Walter  Baker  Company  of  Dorchester,  Mass.,  makers 
of  chocolate,  have  been  in  business  more  than  a  centurv  So 
'many  times  have  they  had  to  fight  infringers  that  their'liti^a- 
tion  is  known  as  the  "Baker  cases."  In  these  cases  "Baker" 
had  acquired  the  "secondary  meaning"  as  a  word  descriptive 

*  Elgin  National  Watch  Co.  ▼.  U.  S    Wateli  r«     .•*  tt    e    ^^     , 

•L.  E.  Watcr^aa  Co.  v.  Modern  ?e«^2?  .^J' f'^^  YuMi'viThL 


TRADE-NAMES  AND  UNFAIR  COMPETITION         669 

of  chocolate,  and  as  it  was  a  common  name  it  was  easy  to 
get  men  named  Baker  to  pose  as  chocolate  manufacturers. 
Some  of  the  "Baker  cases"  were  against  William  Henry  Baker 
of  Winchester,  Va.,  who  started  to  make  chocolate  imitating 
the  package  and  label  of  the  original  firm.  He  was  enjoined 
and  then  he  changed  the  color  of  his  package  to  light  blue, 
adding  the  legend  "Best  quality  now  with  blue  label."  This 
was  enjoined,  and  finally  he  was  compelled  to  print  in  type 
as  large  as  the  label,  "W.  H.  Baker  is  distinct  from  the  old 
Chocolate  Manufactory  of  Walter  Baker  &  Company."  Even 
so,  it  was  advertised  and  sold  as  "Baker's  Chocolate"  until 
that  proceeding  was  enjoined.  If  the  original  firm  one  hun- 
dred years  ago  had  adopted  a  good  common  law  trade-mark, 
it  would  have  saved  thousands  of  dollars  and  much  trouble.' 

§599.    Geographical  Names 

It  is  natural  in  many  cases  to  attach  to  an  article  the 
name  of  the  place  where  it  is  made  or  prepared.  The  Waltham 
Watch,  the  Elgin  Watch,  Minnesota  Flour,  etc.,  are  examples. 
Two  things  may  then  happen.  First,  others  may  make  the 
same  thing  in  the  same  locality  and  claim  the  right  to  attach 
the  name  of  the  place  to  their  product.  Second,  others  in 
other  places  relying  on  the  fact  that  a  geographical  name  can- 
not be  used  as  a  trade-mark  may  make  similar  goods  and 
use  the  name  of  the  original  locality. 

The  courts  consider  either  procedure  as  unfair  competition 
and  give  the  original  users  of  the  name  and  those  who  truly 
mark  their  goods  a  protection  against  those  who  want  to  sail 
under  false  colors.  After  the  Waltham  watch  had  attained 
well-earned  reputation,  another  company  started  in  Waltham 
and  made  watches  which  they  sold  as  "Waltham  Watches." 
The  Massachusetts  courts  restrained  them  from  doing  this.^ 


•  w    R'li.-i.r  *  To   V   Baker.  77  Fed.  181  (1896)".  87  Fed.  209  (1898). 
'Ai,e?ka"  Waltham  Watch  &.  v.  U.  S.  Watch  Co.   .73  Mass.  85-87  (1899)^ 


670  PATENTS,  TRADE-MARKS,  COPYRIGHTS 

A  case  of  the  second  kind  is  found  in  the  attempt  of  cer- 
tain canners  in  the  eastern  part  of  the  country  to  sell  their 
canned  fruit  as  "California  Pears."  " 

The  same  case  arose  where  certain  millers  branded  their 
flour  as  "Mmnesota  Flour."  * 

§600.    Imitation  of  Packages 

In  many  cases  the  cotjrts  have  protected  original  dealers 
by  restrammg  the  use  of  similar  packages  or  labels  by  tricky 
competitors.  In  one  case  a  firm  bought  a  well-known  brand 
of  whisky  m  bulk  and  put  it  up  in  quart  bottles  that  were 
square  and  had  a  bulging  neck.  The  name  "Mount  Vernon 
Whisky  they  had  no  claim  to;  anyone  who  bought  the  same 
whtslg.  from  the  distillery  in  bulk  could  sell  it  under  the  name 
but  when  one  of  their  competitors  put  Mount  Vernon  Whisky 
m  bottles  that  exactly  duplicated  theirs,  the  courts  restrained 
tnem  by  injunction." 

Another  illustrative  case  was  where  a  baker  had  worked 
up  a  good  local  trade  in  bread  made  in  oval  loaves.  Another 
baker  established  himself  in  the  same  place  and  made  loaves 
of  the  identical  shape.  The  court  protected  the  right  of  the 
first  comer  against  the  unfair  competition." 

§  601.    Other  Forms  of  Unfair  Competition 

The  whole  doctrine  of  unfair  competition  is  of  recent 
years  and  is  still  in  process  of  evolution.  On  this  subject  the 
law  is  at  Its  best,  going  on  from  precedent  to  precedent  and 
becoming  ever  clearer  and  sharper  cut  and  less  hampered  by 
the  technical  distinctions  that  dull  the  edge  of  so  many  of 
the  older  legal  doctrines. 


» Fax  V.   Best   Bakery  €0.^209  uLJistU^]^  '°^ 


TRADE-NAMES  AND  UNFAIR  COMPETITION  67 1 

Refilled  packages.  The  law  will  help  the  injured  party  in 
all  cases  where  proof  of  this  can  be  had." 

Deceptive  Advertising.  The  Royal  Baking  Powder  Com- 
pany, backed  by  a  powerful  corporation,  advertised  largely. 
To  take  advantage  of  this,  a  Louisville  man  named  Royal 
started  to  make  and  sell  baking  powder,  printing  his  own 
name  on  the  front  of  his  cans  in  large  letters.  He  was  com- 
pelled  to  put  his  name  on  the  back  of  his  cans."  ^ 

Paine's  Celery  Compound  was  widely  advertised.  "Paine" 
being  a  personal  name  could  not  be  a  trade-mark.  "Celery 
Compound"  being  descriptive  was  likewise  not  good  as  a  trade- 
mark.  The  original  makers  also  used  a  picture  of  a  head  of 
celery.  Siegel,  Cooper  &  Co.  placed  on  sale  in  their  depart- 
ment  store  in  Chicago  a  similar  preparation  called  "M  &  M 
Compound  Extract  of  Celery"  and  advertised  "Celery  Com- 
pound, 85  cents."  An  injunction  was  granted  against  the 
imitator's  use  of  the  words  "Celery  Compound"  and  the  use 
of  the  picture  of  a  head  of  celery. 

Names  of  Businesses.  The  names  of  hotels,  of  theaters, 
of  springs,  of  mines,  of  banks,  and  in  fact  of  any  business 
enterprise  will  be  protected  by  the  courts  against  those  who 
imitate  in  hopes  thereby  to  steal  a  public  patronage  that  others 

have  earned. 

In  a  recent  story  in  a  popular  periodical,  two  obscure 
swindlers  hunt  up  a  remote  namesake  of  a  great  financier, 
Christian  Vandelear,  and  then  start  "The  Vandelear  Explora- 
tion  Syndicate"  with  costly  offices  and  seductive  advertising 
and  the  country  boy  as  president.  There  follows  quite  a  tale 
of  what  was  done,  but  if  such  a  subterfuge  were  really  em- 
ployed it  would  be  terminated  by  an  injunction  in  twenty-four 
hours.    A  man  has  a  right  to  the  fair  and  honest  use  of  his 


"Pre«-0-Lite  Mfg.  Co.  v.  Avery  Lighting  Co.    161  Fed.  Rep.  648. 
u  Royal  Baking  Powder  Co.  v.  Royal,  122  Fed.  J37« 


ill 


67a  PATENTS,  TRADE-MARKS,  COPYRIGHTS 

In  one  case  a  competitor  copied  the  architecture  and  out- 
side appearance  of  a  successful  store,  but  the  courts  enjoined 
Jus  competitor  -  When  a  patent  expires,  the  namt  so  far  as 
n  mdicates  that  peculiar  construction,  can  be  used  by  anyone 
who  makes  it  but  the  name  may  not  be  used  on  an  entfre^ 

mechamsm   o  as  to  convey  the  impression  that  it  is  the  same 
machme  that  was  constructed  by  the  original  company. 

§  60a.    Price  Cutting 

An  interesting  phase  of  the  evolution  of  the  doctrine  of 
fair  trade  is  the  contest  that  is  now  going  on  a^ainsrorice 
cutting.    The  house  of  Robert  IngersoU  &  S.  'Saftu 

SSL'^lrhr^^^^  ?f  ^'  ^"'  ''  '''''^'  advertising  and 
salesmanship  have  created  a  demand  and  no  small  reputation 

iW  aTl  ''Tr'  '"^'^  ^^^^"^  organizations  harC 

claim  that  tfiis  procedure  cheapens  their  product,  prevents 
regular  dealers  from  keeping  it,  and  leaSs  the  pE  to 
beheve  that  the  regular  price  is  an  overcharge 

with  t 's^drt^fh^'.  ?"'  ^^'^  ^"^^  ^^  '"^^^  P^^'^^arly 
with  the  sundries  that  druggists  sell.    Any  line  of  ^oods  that 

has  been  well  advertised  is  liable  to  be  used  in  this  way     The 

advan  age  to  the  trader  is  that  by  advertising  someSg  tla 

IS  well  known  and  much  used  at  a  price  bflow  the  r^^^^^^^^ 

goods  soon  repair  any  losses  on  the  cut-price  goods     The 
d-advantage  to  the  manufacturer  of  the  g^s  Care  lut! 

«  Wemstock  &  Co.  v.  Marks.  109  Ctl.  5.9;  3o  L.  It  A.  ,8a. 


TRADE-NAMES  AND  UNFAIR  COMPETITION  673 

is  serious.  Others  who  sell  them  must  cut  prices  too  or  lose 
their  trade.  If  they  cut,  they  prefer  not  to  sell  them  or  to 
sell  as  few  as  possible  while  they  push  something  on  which 
they  do  not  have  to  cut  prices.  Naturally,  the  manufacturers 
of  goods  that  are  subject  to  this  sort  of  price-cutting  have 
tried  and  are  trying  in  every  way  to  prevent  it  and  to  keep 
their  goods  from  coming  into  the  hands  of  those  who  cut 
prices.  As  the  supposed  object  of  the  competitive  system  is  to 
reduce  price  and  so  benefit  the  consumer,  the  courts  have  not 
shown  themselves  very  heartily  disposed  to  assist  in  the  war 
on  price-cutting. 

Those  who  wish  to  uphold  their  prices  have  attempted: 

1.  Collectively  to  refuse  to  sell  to  those  who  sold  at 

cut  prices.    The  courts  refused  to  sanction  this, 
and  held  it  to  be  in  restraint  of  trade. 

2.  By  direct  contracts  with  jobbers  and  retailers  to 

bind  them  not  to  cut  prices.    This  was  held  Ulegal. 

3.  By  refusing  to  sell  to  parties  who  cut  prices.    This 

has  been  sanctioned  in  one  or  two  cases. 

Meanwhile  the  manufacturers  are  trying  by  associate  action 
and  persistent  propaganda  to  secure  legislation  favoring  price 
maintenance.    The  end  is  not  evident  as  yet. 


I. 
2. 

3- 
4. 


Review  Questions 

What  is  "unfair  competition"?    Why  is  it  a  broader  right  than 

the  enforcement  of  a  trade-mark? 
What  are  trade-names?    Distinguish  between  trade-names  and 

trade-marks. 
What  is  the  doctrine  of  a  "secondary  meaning"? 
What  is  the  reason  that  the  courts  protect  a  man  against  others 

of  the  same  name?    What  was  the  result  of  infringements  on 

Rogers*  Silverware?    On  Baker's  Chocolate? 


ii 


674 


PATENTS,  TRADE-MARKS,  COPYRIGHTS 


5.  In  what  two  cases  will  the  courts  protect  geographical  names? 

6.  Can  shape  and   color  of  container  be  protected?     Would  an 

automobile-maker  be  allowed  to  take  one  color,  say  sky-blue, 
and  prevent  competitors  from  using  it? 

7.  May  old  packages  be  legally  filled  with  other  commodities? 

&    Could  a  place  of  amusement  called  the  "Hippodrome"  be  started 
in  New  York? 

9.    H  a  man  could  be  found  named  J.  P.  Morgan,  would  he  be 
allowed  to  head  a  banking  house  in  New  York? 
What  is  the  object  of  "price-cutting"  as  practiced  by  department 
stores?    Why  do  the  makers  of  the  goods  object? 


10. 


't 


CHAPTER  XCI 

COPYRIGHTS 

§  603.     Definition 

A  copyright  is  the  exclusive  right  given  by  the  government 
to  reproduce,  publish,  and  sell  books,  periodicals,  lectures, 
plays,  maps,  musical  compositions,  works  of  art,  engravings, 
prints,  photographs,  paintings,  statues,  designs,  etc.  A  copy- 
right cannot  be  obtained  if  the  matter  is  to  be  used  as  a 
trade-mark  or  label. 

A  copyright  grant  holds  good  for  twenty-eight  years  and 
may  be  renewed  for  fourteen  years.  Matter  to  be  copyrighted 
must  possess  literary  or  artistic  value. 

A  copyright  grant  gives  the  owner  the  exclusive  right: 

1.  To  print,  publish,  and  sell  the  copyrighted  work. 

2.  To  translate  it ;  to  dramatize  it ;  to  change  its  form ; 

to  arrange  or  adapt  it  if  a  musical  composition; 
to  work  it  out  if  it  be  a  model  or  a  design  for  a 
work  of  art. 

3.  To  deliver  it  in  public  if  it  be  a  lecture  or  an  address. 

4.  To  perform,  represent,  exhibit,  or  reproduce  it  if  it 

is  a  drama,  or  a  dramatic  work,  or  a  musical  com- 
position, or  a  motion  picture. 

§  604.    Who  May  Obtain  Copyright 

The  author  or  owner  of  any  work  eligible  for  copyright, 
or  his  executors,  administrators,  or  assigns,  if  citizens  of  the 
United  States,  may  have  copyright  protection  under  the  copy- 
right law. 

675 


676 


PATENTS,  TRADE-MARKS,  COPYRIGHTS 


COPYRIGHTS 


677 


An  alien  may  likewise  obtain  copyright : 


I. 

2. 


3. 


If  he  is  living  in  the  United  States  at  the  time  of 
the  first  pubHcation  of  his  work. 

If  the  foreign  state  or  nation  of  which  he  is  a 
citizen  grants  to  citizens  of  the  United  States  the 
benefit  of  copyright  on  substantially  the  same 
basis  as  to  its  own  citizens. 

If  such  foreign  state  or  nation  is  a  party  to  an 
international  agreement  which  provides  for  re- 
ciprocity in  the  granting  of  copyright,  which  the 
United  States  may  at  its  pleasure  become  party  to. 

Copyrights  may  be  obtained  by  the  individual  concerned 
and  the  aid  of  an  attorney  is  not  necessary.  The  name  of 
the  owner  of  the  copyright  given  in  the  notice  must  be  the 
true,  legal  name  of  the  person,  firm,  or  corporation  owning 
the  copyright  and  no  other.  The  use  of  a  fictitious  or  assumed 
name  or  the  name  of  any  person  other  than  the  real  owner 
of  the  copyright  may  result  in  the  loss  of  the  copyright 
protection. 

§  605.    Subject  Matter  of  Copyrights 

The  Copyright  Law,  approved  March  4,  1909,  provides 
that  the  application  for  registration  of  any  work  "shall  specif > 
to  which  of  the  following  classes  the  work  in  which  copyright 
is  claimed  belongs."  An  article  is  not  entitled  to  registration 
unless  It  is  reasonably  possible  to  classify  it  under  one  or  the 
other  of  the  following  designations: 

*       "(a)    Books,  including  composite  and  cyclopaedic  works, 

directories,  gazetteers,  and  other  compilations  \ 

(b)  Periodicals,  newspapers; 

(c)  Lectures,  sermons,  addresses,  prepared  for  oral 

delivery; 


(d)  Dramatic  or  dramati'-o-musical  compositions; 

(e)  Musical  composition,  ; 

(f)  Maps; 

(g)  Works  of  art;  models  or  designs  for  works  of 

art; 

(h)     Reproductions  of  a  work  of  art ; 

(i  )     Drawings  or  plastic  works  of  a  scientific  or  tech- 
nical character; 

(j)     Photographs; 

(k)     Prints  and  pictorial  illustrations." 

The  Amendatory  Act  approved  August  24,  19 12,  added 
the  following  two  new  classes  of  works,  subject  matter  of 
copyright : 

"(1)       Motion  picture  photoplays; 
(m)     Motion  pictures  other  than  photoplays." 

All  works  in  the  English  language  must  be  printed  and 
set  up  in  type  for  printing  in  the  United  States,  the  idea  being 
that  the  entire  operation  must  be  done  in  this  country.  This 
restriction  does  not  apply  to  works  in  a  foreign  language. 
In  the  case  of  books,  the  copies  deposited  must  be  accompanied 
by  an  affidavit,  properly  signed  and  sealed,  stating  that  the  type- 
setting, printing,  and  binding  of  the  book  have  been  performed 
witliin  the  United  States.  The  application  and  affidavit  forms 
may  be  obtained  by  writing  to  the  Copyright  Office.  This 
affidavit  is  not  required  in  the  case  of  a  book  of  foreign  origin 
in  a  language  or  languages  other  than  English,  or  in  the  case 
of  a  printed  play  in  any  language,  as  such  works  are  not 
required  to  be  manufactured  in  the  United  States. 

§606.    The  First  Step 

The  work  with  the  copyright  notice  affixed  must  first  be 
published.  The  notice  may  be  in  the  usual  fenti:  "Copyright, 


678 


PATENTS,  TRADE-MARKS,  COPYRIGHTS 


COPYRIGHTS 


679 


1920,  by  the  Ronald  Press  Company."  It  is  to  be  remembered 
that  the  book  is  published  with  the  copyright  notice  before 
anything  else  is  done.  Publication  with  notice  comes  first  of 
all.  The  notice  is  usually  printed  in  small  type  on  the  back 
of  the  title  page. 

§  607.    Subsequent  Procedure 

If  you  write  to  the  Register  of  Copyrights,  Library  of 
Congress,  Washington,  D.  C,  stating  under  which  of  the 
heads  enumerated  above  your  work  comes,  the  office  will  send 
to  you  the  necessary  heads  and  information  for  making  ap- 
plication. 

After  publication,  there  must  be  mailed  to  the  Register 
of  Copyrights  two  copies  of  the  best  edition  of  the  work 
together  with  the  application  for  registration  and  a  money- 
order  for  the  statutory  fee  of  $1  payable  to  the  "Register  of 
Copyrights."  This  requirement  of  the  two  copies  is  only  for 
works  reproduced  for  sale.  For  works  not  reproduced  for 
sale  one  complete  manuscript  or  typewritten  copy  is  required. 

There  is  seldom  any  complication,  as  the  copyright  is 
merely  a  formal  registration  in  the  office  of  the  Librarian  of 
Congress  of  the  facts  connected  with  the  publication  of  the 
particular  book. 

The  procedure  consists  of  the  filling  out  of  the  prescribed 
forms  and  the  forwarding  to  the  Register  of  Copyrights, 
Washington,  D.  C,  of  the  forms,  fee,  and  copies  of  the  book, 
as  follows: 

1.  Application  for  copyright 

2.  Affidavit  of  American  manufacture  of  book 

3.  Statutory  registration  fee  of  $1 

4.  Two  copies  of  the  book 

All  remittances  should  be  made  by  money-order  or  bank 
draft,  payable  to  the  "Register  of  Copyrights." 


§  608.    Making  out  the  Application  for  Copyright* 

The  application  for  copyright  is  made  out  on  the  blank 
forms  furnished  by  the  Register  of  Copyrights,  Washington, 
D.  C,  and  designated  by  them  as  forms  "A  i"  for  new  books, 
and  "A  2"  for  reissued  books.  The  information  required  on 
each  varies  slightly.    The  following  is  required  in  both : 

First  comes  a  statement  of  the  name,  address,  and  citizen- 
ship of  the  copyright  claimant.  Books  are  ordinarily  copy- 
righted in  the  name  of  the  publisher  rather  than  in  that  of 
the  author,  since  by  making  the  royalty  contract  with  the 
publisher  the  author  really  licenses  the  publisher  to  sell  his 
book.  It  will  be  necessary  to  know,  when  preparing  the  book 
for  the  printer,  in  whose  name  the  book  is  to  be  copyrighted, 
as  the  book  must  bear  the  copyright  statement  on  the  reverse 
side  of  the  title  page,  and  the  application  and  registration  are 
not  made  until  after  the  publication. 

Sometimes,  however,  if  it  is  anticipated  that  a  book  will 
still  be  selling  well  after  the  period  of  twenty-eight  years  for 
which  the  copyright  holds,  or  even  after  the  additional  four- 
teen years — forty-two  in  all — for  which  a  copyright  may  be 
renewed,  the  author  may  prefer  to  take  out  the  copyright  in 
his  own  name.  The  reason  for  this  is  that  any  heirs  would 
be  less  handicapped  in  case  of  litigation  over  claims  for  royalty, 
if  the  registration  were  in  the  author's  name. 

In  filling  in  the  author's  name  only  the  legal  name  and 
address  should  be  used;  no  nom  de  plume  or  fictitious  name 
should  be  given.  In  filling  in  the  book  title  on  the  application 
card,  the  exact  title  should  be  stated.  If  there  is  a  long  sub- 
title, however,  this  need  not  be  given.  For  instance,  the  full 
title  might  be  as  follows : 


*  The  Register  of  Copyrigrhts,  Library  of  Congress,  Washington.  D.  C,  will  furnish 
on  request  Bulletin  No.  14,  containing  full  text  of  Copyright  Law  with  rules  for 
practice  and  procedure,  and  Bulletin  No.  15,  containing  rules  and  regulations  for 
registratton   of  claims  to  copyright. 


It 

Vi 


68o 


PATENTS,  TRADE-MARKS,  COPYRIGHTS 


COPYRIGHTS 


68 1 


I* 


Getting  the  Most  Out  of  Business 

Observations  on  the  Application  of 

the  Scientific  Method  of 

Business  Practice 

In  such  a  case,  only  the  main  title  would  be  placed  on  the 
card.  Generally,  the  copyright  does  not  protect  the  title,  but 
the  subject  matter  of  the  book. 

In  giving  the  information  as  to  the  number  of  volumes  of 
which  the  book  consists,  the  form  should  state  whether  it  is 
in  more  than  one  volume,  the  number  of  volumes,  and  which 
are  being  deposited. 

The  date  of  publication  is  an  important  item.  The  date 
is  the  day  on  which  the  book  was  first  placed  on  sale.  It 
sometimes  happens  that  a  book  is  printed  and  delivered  to 
the  publisher,  but  is  not,  for  some  reason,  placed  on  sale  for 
a  short  time.  In  such  cases,  the  day  when  it  is  actually  put 
on  the  market  should  be  given  as  the  date  of  publication. 

The  name  of  the  person  to  whom  the  certificate  of  registra- 
tion is  to  be  sent,  as  well  as  that  of  the  person  sending  the  fee, 
is  nearly  always  that  of  the  publisher,  even  though  the  author 
takes  out  the  copyright. 

In  addition  to  the  points  noted  above,  in  giving  the  data 
for  reissued  books,  the  new  material  on  which  copyright  pro- 
tection is  asked  must  be  specified.  The  numbers  of  the  pages 
are  usually  sufficient.  It  is  only  necessary  to  take  out  new 
copyrights  when  substantial  changes  are  made  in  the  book, 
not  every  time  it  is  reprinted. 

Also,  in  the  case  of  reissued  books,  the  application  card 
must  contain  the  date  of  registration  of  the  original  edition, 
together  with  the  registration  number.  These  data  may  be 
obtained  from  the  records  of  the  publishing  house.  Copyright 
registration  cards  should  be  very  carefully  preserved,  as  they 
are  original  evidence  in  case  of  any  controversies. 


§609.    The  Affidavit 

The  Copyright  Law  provides  that  books  to  be  copyrighted 
in  this  country  must  be  printed  either  from  type  set  in  the 
United  States,  or  from  plates  made  from  type  set  in  the 
United  States.  Therefore  the  claimant  must  file  an  affidavit 
as  to  these  points.  The  blank  form  for  this  is  found  on  the 
reverse  side  of  the  application  form.  It  must  be  sworn  to 
before  a  notary  by  a  responsible  official  of  the  publishing  house. 
The  facts  which  have  to  be  recorded  for  both  new  and  reissued 
books  are  as  follows : 

First,  the  relation  to  the  book  of  the  person  swearing,  i.e., 
whether  he  is  the  person  claiming  the  copyright  (this  is  usually 
the  case  with  publishers),  the  authorized  agent  of  the  claimant 
in  the  United  States,  or  the  printer  of  the  book. 

Additional  data  to  be  given  are:  the  title  of  the  book  (this 
must  agree  with  the  title  given  in  the  application),  the  name 
and  address  (city  address,  not  street)  of  the  printer,  the  name 
and  address  of  the  firm  which  set  up  the  type,  whether  the 
book  was  printed  from  type  or  slugs,  the  day  on  which  the 
printers  finished  printing,  the  name  and  address  of  the  binder, 
and  the  date  of  publication  (which  must  agree  with  that  on 
the  application).  The  data  for  all  this  information  including 
the  day  on  which  the  printing  was  finished  and  the  binder's 
name  must  be  obtained  from  the  publisher  if  anyone  else  is  to 
fill  out  the  application. 

§  610.    The  Fees 

The  fee  for  registering  the  copyright  on  a  book  is  $1, 
payable  in  money-order  or  express  order.  Checks  will  not  be 
accepted  unless  certified,  and  postage  stamps  will  not  be  ac- 
cepted in  any  case.  If  a  work  should  be  issued  in  more  than 
one  volume,  the  one  fee  will  secure  registration  for  all,  pro- 
vided that  the  books  are  sent  in  all  at  one  time.    There  is  also 


682 


PATENTS,  TRADE-BfARKS,  COPYRIGHTS 


COPYRIGHTS 


I 


the  usual  notarial  fee  of  25  cents  for  taking  the  acknowledg- 
ment on  the  affidavit. 


§  611.    The  Books  Deposited 

The  Copyright  Law  specifies  that  the  books  filed  for  copy- 
right  purposes  shall  be  "the  best  edition  of  the  work."  This 
is  interpreted  to  mean  the  more  expensive  binding  in  case  a 
book  is  published  in  more  than  one  binding;  or  the  complete 
edition,  in  case  there  is  a  special  abridged  edition.  In  these 
cases  the  copyright  covers  both  books. 

The  requisition  to  the  shipping  department  of  the  publish- 
ing house  should  note  on  the  order  "For  copyright  purposes," 
and  it  is  then  the  duty  of  the  shipping  department  to  see  that 
the  books  are  turned  over  to  the  post-office  for  mailing  without 
postage. 

§  6ia.    Time  for  Filing  Copjnright 

Books  are  published  with  the  copyright  notice  already  in, 
but  the  application  for  copyright  is  not  made  until  later  when 
the  book  is  actually  on  the  market.  There  seems  to  be  no 
definite  stipulation  as  to  when  the  application  must  be  made, 
but  it  should  be  done  without  delay  when  notice  is  received 
that  the  book  is  on  sale. 

§  613.    Renewals 

The  question  of  renewing  copyrights  for  an  additional 
term  of  fourteen  years  does  not  often  arise.  Most  books  are 
revised  and  added  to  and  the  newer  editions  carry  the  full 
twenty-eight  years.  Sometimes,  the  old  editions  should  be 
renewed  to  keep  others  from  publishing  them,  as  was  done 
by  unscrupulous  competitors  with  the  original  editions  of 
Webster's  Unabridged  EHctionary. 


683 


§  614.    British  Copyright 

By  the  Act  of  191 1,  an  American  citizen  may  obtain  a 
British  copyright  for  a  published  work  by  publication  of  the 
thing  sought  to  be  copyrighted  in  some  British  Dominion, 
either  first,  or  simultaneously  with  the  appearance  of  the  work 
in  America.  By  "simultaneously"  is  meant  that  the  length  of 
time  between  publication  in  British  territory  and  the  United 
States  shall  not  exceed  fourteen  days. 

The  Act  of  191 1,  however,  does  not  apply  to  Canada, 
Australia,  New  Zealand,  Newfoundland,  and  the  Union  of 
South  Africa.  Each  of  these  five  dominions  has  its  own  copy- 
right law  which  must  be  adhered  to  in  applying  for  a  copyright. 

Publication  simultaneously  with  a  work  here  will  be 
deemed  as  publication  first  in  a  British  Dominion,  provided 
the  publication  there  is  not  colorable  only.  That  is  to  say, 
a  publication  that  is  not  intended  to  satisfy  the  reasonable 
demand  of  the  public,  as  if  a  firm  were  to  send  over  ten  copies 
of  a  piece  of  music  for  the  purpose  of  using  some  of  them 
for  registration  of  the  copyright  and  the  remaining  two  or 
three  copies  to  be  put  on  the  market  to  sell,  well  knowing 
that  the  demand  for  that  music  would  far  exceed  the  supply 
and  knowing  that  they  did  not  intend  to  make  a  business  of 
that  particular  music  in  the  British  dominions,  but  merely 
wished  to  protect  it  from  being  copied. 

It  will  readily  be  seen  that  during  the  period  of  the  war 
it  was  almost  impossible  for  any  publisher  to  have  a  book 
copyrighted  and  placed  on  sale  in  England  within  fourteen 
days  from  the  American  publication  date.  In  order  to  avoid 
this  difficulty  a  bill  has  been  passed  in  Congress  and  upon 
the  signing  of  this  by  the  President,  the  English  government 
has  promised  to  amend  the  situation  there.  This  bill  provides 
that  residents  of  countries  offering  our  authors  similar  pro- 
tection, such  as  England,  France,  Belgium,  and  Italy,  shall 
have  fifteen  months  from  the  date  of  the  proclamation  of 


6«4  PATENTS,  TRADE-MARKS,  COPYRIGHTS 

peace  in  which  to  fulfil  the  formalities  of  perfecting  a  copy- 
nght  on  aU  books  issued  in  their  own  country  since  August 
I,  1914. 

There  are  several  private  concerns  that  will  secure  British 
copyrights  for  books  to  be  published  here.  In  all  such  cases 
the  copyright  notice  should  be  foUowed  by  the  legend  "All 
ri^ts  reserved,"  and  the  publication  date  here  should  be  de- 
layed to  allow  time  for  sending  copies  over  to  England. 


Review  Questions 


I. 


2. 


What  IS  a  copyright?  How  long  does  it  last ?  What  value  must 
matter  to  be  copyrighted  have?    What  rights  does  it  give? 

Who  may  have  copyright?  When  may  an  alien  secure  copy- 
right ?  ^ 

3.  The  article  to  be  copyrighted  must  be  included  in  what  general 

class?    What  copyright  works  must  be  printed  in  this  country? 

4.  What  IS  the  first  step  in  obtaining  copyright?    When  may  blanks 

be  secured  for  making  application  ? 

5.  What  are  the  rules  as  to  sending  in  copies  of  work?    What 

statements  are  required  in  the  application  ? 

6.  What  is  the  fee  for  a  copyright ?    Is  a  lawyer  needed? 

7.  How  soon  after  publication  should  the  application  for  copyright 

be  sent? 

a    How  may  an  American's  work  be  protected  by  copyrieht  in 
Great  Britain  ?  -^       f/    6 

9.    What  is  meant  by  "colorable"  in  regard  to  British  copyright? 
10.    Do  all  the  dominions  of  Great  Britain  come  under  the  Act  of 
1911  allowing  copyright  to  Americans? 


PART  XVIII 
TAXATION 


!. 


Ill 


4 


CHAPTER  XCII 


LAYING  TAXES 


§  615.    Who  Has  the  Right  to  Lay  Taxes 

According  to  the  theory  on  which  our  government  is 
founded,  taxes  may  be  laid  on  the  people  only  by  themselves. 
As  it  is  impossible  for  them  to  do  this  literally,  the  right  has 
been  delegated  to  the  state  legislature  composed  of  members 
duly  elected  by  the  people.  The  state  legislature  therefore  has 
the  supreme  taxing  power. 

The  federal  government  was  established  by  concessions 
from  the  several  states  of  various  powers  which  it  was  ad- 
mitted could  be  better  exercised  by  the  nation  as  a  whole  than 
by  the  separate  states.  All  the  powers  of  the  federal  govern- 
ment came  originally  from  the  states.  Among  these  powers 
was  the  power  of  taxing  within  certain  limitations. 

The  federal  government  can  lay  taxes  only :  ( i )  to  cover 
its  own  expenses,  and  (2)  to  carry  out  those  acts  and  to  per- 
form those  duties  for  which  it  was  formed  by  the  Constitution ; 
namely,  "to  provide  for  the  common  defense,  to  promote  the 
general  welfare,"  and  to  pay  the  debts  of  the  United  States 
incurred  for  these  purposes. 

Within  the  state  itself,  the  legislature  usually  delegates  the 
right  to  lay  taxes  for  local  purposes  to  counties,  cities,  incor- 
porated villages,  and  divisions  formed  for  special  purposes, 
such  as  school  districts  and  road  districts. 

The  power  of  the  state  legislature  to  lay  taxes  is  limited 
only  by  the  provisions  of  the  state  constitution  and  the  rule 
which  governs  all  taxation  in  this  country — that  the  tax  must 
have  been  voted  at  a  regularly  called  and  properly  constituted 

687 


6BS 


TAXATION 


session  of  the  legislature,  and  that  the  persons  taxed  shall  have 
an  opportunity  to  be  heard  in  their  own  behalf. 

The  federal  government  has  only  the  powers  heretofore 
enumerated.  Any  other  body  has  only  those  powers  expressly 
given  It  by  the  legislature  and  which  are  embodied  in  a  duly 
enacted  statute. 

§  6i6.    Purposes  for  Which  Taxes  May  Be  Laid 

State  taxes  may  be  laid  to  cover  any  of  the  necessary  ex- 
penses of  the  state ;  such  as  the  administration  of  justice,  the 
maintenance  of  public  education,  or  the  construction  and  the 
maintenance  of  public  highways  and  waterways;  in  short  any 
public  service  which  the  citizens  of  the  state  choose  to  assume. 
The  federal  government  is  usually  charged  with  the  expense, 
or  the  major  part  of  the  expense,  of  maintaining  and  improv- 
ing navigable  rivers  and  harbors;  while  the  state  governments 
take  charge  of  smaller  bodies  of  water  within  their  own 
boundaries. 

Small  divisions  such  as  school  and  road  districts  may  tax 
only  for  the  purpose  of  keeping  up  the  roads  or  the  schools 
within  the  district  Counties  and  cities  are  allowed  to  tax  only 
for  their  own  local  purposes,  and  then  only  for  those  which 
have  been  specified  in  the  statute  giving  them  the  right  to  tax. 

The  purposes  for  which  the  federal  government  may  lay 
taxes  have  been  mentioned:  to  defray  its  own  expenses;  to 
provide  for  the  common  defense— that  is,  by  maintaining  an 
army  and  a  navy,  with  fortifications  and  army  posts  where 
necessary;  to  promote  the  general  welfare,  a  clause  which 
covers  aU  necessary  expenses  for  the  carr>'ing  out  of  legisla- 
tion deemed  to  be  for  the  welfare  of  the  country  as  a  whole, 
such  as  post-offices,  banking  and  currency  systems,  etc. ;  and 
lastly  to  pay  debts  which  have  been  incurred  for  any  of  these 
purposes. 

The  federal  government  has  no  right  to  lay  a  tax  for  the 


LAYING  TAXES 


689 


benefit  of  any  particular  part  of  the  country.  If  the  tax  bill 
should  state  that  the  tax  was  to  be  laid  for  a  particular  dis- 
trict it  would  be  unconstitutional,  and  taxpayers  may  refuse 
to  pay  it.  In  practice  many  taxes  are  laid  for  the  benefit  of  a 
particular  part  of  the  country ;  but  if  the  tax  is  stated  to  be  for 
a  particular  purpose  throughout  the  country  as  a  whole,  it  is 
valid,  even  though  that  purpose,  as  a  matter  of  fact,  affects  only 
a  few  states,  or  even  only  one. 

§  617.    Methods  of  Taxation 

There  are  two  methods  of  laying  taxes. 

The  federal  government  in  imposing  a  tax  generally  pre- 
scribes a  rate  to  be  laid  on  property,  or  on  certain  transactions. 
The  government  then  collects  the  tax  and  applies  it  to  the 
various  purposes  for  which  authorization  has  been  given  in 
the  Constitution. 

The  state  government,  on  the  other  hand,  makes  an  appro- 
priation to  meet  some  particular  need  of  the  government  and 
the  tax  rate  is  determined  accordingly. 

Taxes  laid  by  the  federal  government  are  of  two  kinds : 

1.  Direct  taxes  may  be  laid  on  persons  and  property, 

and  these  must  be  apportioned  among  the  states 
according  to  population. 

2.  Indirect  taxation  may  be  imposed,  such  as  duties  on 

imports  and  excise  taxes  on  goods  produced 
within  the  country  (such  as  luxuries  and  tobacco) 
and  these  must  be  uniform;  that  is  to  say,  all 
articles  of  the  same  nature  must  be  taxed  alike. 

By  the  Sixteenth  Amendment  to  the  Constitution,  Con- 
gress was  given  the  right  to  lay  a  tax  on  incomes,  and  to 
disregard  the  former  constitutional  provision  that  a  direct  tax 
shall  be  proportional  to  the  population.  In  pursuance  of  this 
amendment  the  government  has  raised  enormous  sums  for  the 


690 


TAXATION 


conduct  of  the  great  war,  and  the  federal  income  tax  has 

Lasurtn/  Sf  'H  ::r""''"«^  P'"^*'^^  demanding  no  small 
measure  of  skill  and  ability/ 

eauar^vT^ '*"''''  ^  P'-^P'^rty-  '«'  -nd  personal,  is  subject  to 
equa  taxation;  m  others,  only  certain  forms  of  property  are 
^uaUy  taxed,  while  certain  kinds  are  exempt.    I„^  N^w  YoTk 

«,TLr  T"^  '  *'  '"*"  °^  *^"*'°"  '^  d'ff^^^"t  for  differ- 
ent kmds  of  property.     The  legislature  may  classify  either 
persons  or  property  for  the  purpose  of  taxation,  and  lay  taxe 
equaUy  on  all  within  a  particular  class.    If  the  classiJtiS^ 

foSe.         ^'""'  ''"''  *^  *"  '^  constitutional  and  X 

There  must  always  be  some  reasonable  division  of  persons 
or  of  proper^  for  the  purposes  of  taxation,  and  the  tJ^rs 
be  laid  equally  on  all  within  each  group.  Singling  out  any 
separa  e  persons  or  pieces  of  property  and  laying  on  them  tie 
whol  tax  or  a  greater  amount  of  the  tax  than  on  others  which 
might  reasonably  be  supposed  to  fall  within  the  same  class  h 
unconstitutional  and  such  a  tax  cannot  be  enforced. 

§  618.    Extent  to  Which  Persons  May  Be  Taxed 

There  is  practically  no  limit  to  the  extent  to  which  persons 
or  property  may  be  taxed.  For  example,  if  a  man  owTa 
P^ce  of  property,  the  federal  government  may  tax  it  for 
national  purposes.    The  state  government  may  also  tax  it    or 

district  may  lay  still  another  tax  on  it.    All  of  these  taxes 

tritor^rn-""*  °'  ''"'  P'"^  "'  P^^P^^-    Each  one  of  th 
territorial  divisions  may  tax  the  property  several  different 

times  in  one  year  for  the  different  purposes  for  which  Zy 
are  allowed  to  lay  taxes.  ^ 

__ins^usual  for  states  to  tax  corporations  on  their  capital 

•Momgoi^ery's  "Income  T«  Procedure"  i.  the  leading  authority  on  thi.  object 


LAYING  TAXES 


691 


Stock,  and  also  to  tax  stockholders  on  the  stock  in  their  posses- 
sion. This  amounts  to  a  double  tax  on  the  same  stock.  The 
stockholder  usually  pays  the  whole  tax  in  the  end,  because  even 
if  the  corporation  makes  the  payment,  taxes  diminish  dividends 
and  tend  to  depreciate  the  value  of  the  stock. 

A  person  may  pay  taxes  on  his  real  and  his  personal  prop- 
erty to  the  state ;  an  income  tax  on  the  income  from  them  to 
the  federal  government ;  another  tax  to  the  state  on  his  right 
to  engage  in  an  occupation ;  and  in  addition  to  these  a  poll  tax 
which  is  a  specific  sum  laid  upon  the  individual  without  refer- 
ence to  his  property,  business,  or  employment,  and  depending 
upon  residence  rather  than  upon  citizenship.  The  taxes 
enumerated  are  all  direct  taxes. 

Indirect  Taxes.  States  very  frequently  impose  a  tax  on 
the  right  to  transfer  stock,  or  to  inherit  property.  The  federal 
government  lays  a  duty  on  imports.  The  amount  of  the  duty 
is,  of  course,  added  to  the  price  of  the  goods  and  is  paid 
ultimately  by  the  consumer.  Tobacco  and  specified  luxuries 
p?;r  special  revenue  taxes.  In  case  of  war  or  special  need  to 
raise  funds  for  the  expenses  of  the  national  government,  it  is 
common  to  impose  stamp  taxes ;  that  is,  to  require  government 
stamps  to  be  placed  on  various  legal  and  business  documents 
and  on  specified  articles  of  merchandise. 

Taxes  paid  are  not  necessarily  for  advantages  which  the 
taxpayer  himself  receives.  Persons  who  have  no  children,  or 
who  send  their  children  to  private  schools,  are  required  to  pay 
a  school  tax.  Taxes  on  real  estate  may  be  expended  on  im- 
provements that  mainly  benefit  real  estate  in  other  parts  of 

the  town. 

So  long  as  the  purpose  for  which  the  tax  is  laid  is  legal 
and  within  the  powers  of  the  body  laying  it,  there  is  no  limit 
to  the  extent  to  which  taxes  may  be  imposed.  As  it  has  been 
expressed,  the  power  to  tax  is  the  power  to  destroy.  When 
the  national  banking  system  was  instituted,  a  10  per  cent  tax 


6^2 


TAXATION 


on  the  circulation  of  the  state  banks  made  it  impossible  for 
them  to  issue  bank  notes. 


Review  Questions 


Jl>« 


2. 


Who  has  the  supreme  taxing  power?  Whence  did  the  federal 
goverafflent  derive  its  powers  to  tax?  What  duties  of  the 
federal  government  require  the  taxing  power?    What  bodies 

^uZT  '''  ^n^  '"^^  •"""  '°  '^y  '-«?    What  Jim 
exists  on  the  power  of  a  state  to  tax  ? 

For  what  purposes  are  state  taxes  levied?    For  what  purposes 
are  federal  taxes  laid?    Can  a  tax  be  laid  for  the  b;nero 
a  particular  part  of  the  country  > 

^'    "Ithl.""/!"'  ""'^  "■"  ^"^''"^  governments  differ  in  their 
methods  of  levymg  taxes?    How  did  the  federal  government 

^TdTs;? ' "' '""" '"~""  "''■  ^-^  •""'' »--" 

4.    To  what  extent  may  taxation  be  laid?    How  many  taxes  mav  be 
assessed?     Distinguish   "direct"  and   "indirect"   taxes      Give 

A  tantf  on  steel  rails? 


CHAPTER  XCIII 


COLLECTING  TAXES 


§6x9.     Assessment  of  Real  Property 

The  usual  method  of  assessing  real  property  for  taxes  is 
to  appoint  appraisers  to  fix  a  valuation  on  the  property  subject 
to  taxation.  Sometimes  the  property  is  assessed  on  its  true 
value  and  sometimes  on  a  certain  fixed  percentage  of  its  value. 
In  New  York  City  property  is  assessed  on  its  full  value.  This 
difference  in  the  manner  of  assessing  real  estate  necessitates 
the  appointment  of  a  body  to  equalize  the  taxes  throughout 
the  state;  or,  where  the  taxes  are  for  a  smaller  division,  for 
that  division.  The  State  Board  of  Equalization  performs  this 
function  for  the  State  of  New  York,  and  the  Board  of  Tax 
Commissioners  for  New  York  City.  Throughout  the  state, 
county  taxes  are  equalized  by  Boards  of  Supervisors.  The 
valuation  of  real  property  is  supposed  to  be  made  every  year. 
As  a  matter  of  fact,  the  assessors  cannot  view  and  appraise 
the  property  every  year,  and  the  result  is  that  they  frequently 
guess  at  values. 

In  assessing  real  property,  the  value  of  any  buildings  or 
improvements  is  included.  If  there  is  any  restriction  on  the 
owner's  use  of  the  property  when  he  takes  it,  such  as  a  right 
of  way,  or  a  Hmitation  in  regard  to  the  character  of  the  build- 
ings to  be  erected  on  it,  this  is  deducted  from  the  value  of  the 
property.  No  charges  against  the  property  which  the  owner 
himself  has  created,  however,  are  deducted. 

It  is  the  duty  of  the  assessors  to  keep  the  books  open  for 
inspection,  and  to  give  notice  to  the  taxpayers  of  a  reasonable 
opportunity  for  inspection  of  the  tax  roll.    Usually,  the  notice 

693 


694 


TAXATION 


COLLECTING  TAXES 


695 


may  be  published  in  a  local  paper.  Merely  allowing  the  books 
to  be  inspected  during  the  course  of  one  day  would  not  satisfy 
the  law,  as  it  might  be  inconvenient  or  impossible  for  some 
persons  to  attend  at  that  time.  In  some  states  the  assessors 
themselves  listen  to  complaints  and  objections  to  the  assess- 
ment; m  others,  a  board  on  grievances  is  established,  before 
which  these  complaints  are  to  be  made. 

After  all  complaints  have  been  heard  and  adjusted  the 
assessors  make  out  a  warrant  for  the  collector  and  send  it  to 
him  together  with  the  assessment  roll 

§  6ao.    Assessment  of  Personal  Property 

The  federal  income  tax,  and  in  some  states  all  taxes  on 
personal  property,  are  based  upon  the  sworn  reports  of  income 
or  hsts  of  property  required  to  be  submitted  to  the  tax  col- 
lector by  all  persons  subject  to  the  tax. 

In  some  states  of  the  Union,  the  taxpayer  is  given  a  com- 
prehensive  schedule  of  personal  property,  which  he  is  required 
to  fiU  m  with  number  and  value,  and  then  swear  to.  Those 
who  are  very  conscientious  do  this  exactly  and  must  then  pay 
the  full  rate  of  taxation  on  the  amount.  Those  who  are  less 
conscientious,  neither  enumerate  nor  value  according  to  the 
facts,  and  are  taxed  on  what  they  report.  The  personal  tax 
laws  generaUy,  if  correctly*  entitled,  would  be  called  "laws  to 
encourage  fraud  and  to  promote  perjury."  As  such  they 
come  as  near  achieving  their  purpose  as  any  laws  on  the 
books. 

In  other  states,  the  report  on  personal  property  is  optional 
and  if  the  victim  feels  that  his  conscience  will  not  let  him 
swear  to  less  than  he  has,  he  can  show  the  appraiser  around. 
Ihat  official,  not  desiring  to  offend  the  voters  who  elected 
him,  does  not  look  too  closely  nor  value  excessively,  and  usually 
averages  his  neighbors  in  a  rough  way,  in  the  same  proportion, 
so  that  aU  are  assessed  below  the  actual  amounts,  but  all  feel 


that  they  are  being  relieved  of  most  of  the  amounts  due,  and 
hence  appreciate  the  friendliness  of  the  assessor. 

There  are  many  variations  of  these  methods,  all  more  or 
less  faulty,  and  it  is  not  probable  that  taxes  are  paid  on  more 
than  one-third  of  the  personal  property  in  the  country.  The 
taxes  on  real  property  cannot  be  evaded ;  the  taxes  on  personal 
property  are  generally  evaded.  Men  of  known  wealth  return 
ridiculously  small  amounts  of  personal  property.  Others  have 
country  places  where  by  understanding  with  the  tax  authorities 
their  assessments  are  limited  to  some  specified  sum,  far  below 
the  real  value.  It  is  possible  for  a  wealthy  man  to  live  at 
hotels  and  to  avoid  any  permanent  residence  with  the  obliga- 
tions of  tax-paying,  jury  duty,  etc.  Hetty  Green  managed, 
during  a  long  life,  to  enjoy  the  advantages  of  living  in  a 
civilized  country  and  evading  most  of  her  portion  of  the  cost. 
Most  of  our  citizens  would  be  willing  to  pay  their  fair  share 
of  the  taxes  if  their  neighbors  did  the  same.  When  the  law 
punishes  the  conscientious  and  rewards  the  man  who  perjures 
himself,  the  average  man  follows  the  example  of  his  neighbor. 

It  is  obvious  that  whatever  amount  is  evaded  by  one  man 
must  be  made  up  by  others,  and  as  a  matter  of  fact,  the 
custom  of  evasion  is  so  general  that  the  tax  rate  has  been 
raised  so  that  it  is  confiscatory  if  anyone  does  report  truly. 
A  rate  of  approximately  2  per  cent  is  not  uncommon.  If  a 
man  left  his  family  $20,000  interest-bearing  securities  earning 
6  per  cent  and  paying  them  $1,200  per  annum,  and  his  widow 
returned  these  securities  for  taxation,  the  state  would  take  2 
per  cent  or  $400,  and  would  leave  the  widow  and  children  $800 
to  live  on.  Most  frequently  such  securities  are  not  reported 
and  the  assessors  do  not  investigate  too  closely.  Business  men 
have  many  ways  of  avoiding  and  evading  taxation  and  salving 
their  consciences. 

It  is  not  a  pleasant  subject  and  it  is  well  argued  that  as 
personal  taxes  are  generally  evaded  and  as  it  is  impossible  to 


696 


TAXATION 


COLLECTING  TAXES 


697 


coUect  with  any  fairness,  they  should  be  abandoned  and  a  larger 
proportion  of  the  money  required  by  the  state  should  be  raised 
by  land  taxes,  income  taxes,  inheritance  taxes,  excise  taxes, 
and  the  like.    The  question  is  too  large  for  discussion  here. 

§  6ai.    Payment  of  Taxes 

In  some  localities  the  collector  of  taxes  will  appoint  certain 
days  on  which  he  will  be  present  to  receive  taxes,  and  must 
give  taxpayers  notice  of  the  time  and  the  place.  This  is  usually 
done  by  publication  in  a  local  paper. 

If  the  taxes  are  not  paid  within  the  time  appointed,  the 
governing  authority  has  a  right  to  sell  the  property  and  to 
take  what  is  due  out  of  the  proceeds. 

After  trying  several  unsuccessful  methods  of  collecting 
taxes  from  delinquents  in  New  York,  the  City  of  New  York 
now  sells  its  claim  for  taxes,  in  the  form  of  a  lien  on  the  piece 
of  land  on  which  the  tax  remains  unpaid,  to  the  person  who 
will  take  it  and  charge  the  delinquent  owner  the  lowest  amount 
of  interest.  The  purchaser  may,  if  the  lien  is  not  paid,  en- 
force his  lien  as  a  mortgage  on  the  land.  This  has  proved 
successful,  and  a  sale  of  the  property  under  foreclosure  of 
this  lien  gives  a  good  title  to  the  person  who  buys  the  land. 

§  622.    Taxation  of  Corporations 

An  individual  or  firm  in  business  is  taxed  in  the  state  of 
residence  and  elsewhere  exactly  as  citizens  of  the  state  are 
taxed,  and  the  constitution  prevents  any  distinction  being  made 
between  citizens  of  a  state  and  citizens  of  another  state  doing 
the  same  business,  but  corporations  usually  have  special  taxes 
to  pay  in  their  home  states  and  special  taxes  and  reports  in 
every  other  state  in  which  they  do  business.  The  questions 
given  at  the  close  of  the  chapter  indicate  the  difficulties  with 
which  corporations  contend,  especially  when  they  operate  as 


foreign  corporations  in  states  other  than  the  states  in  which 
they  were  incorporated.^ 

§623.    The  Federal  Income  Tax 

Any  useful  discussion  of  the  federal  income  tax  would 
be  impossible  in  the  brief  space  that  could  be  given  to  it  here. 
It  is  a  most  unfortunate  piece  of  legislation,  badly  contrived 
in  the  first  place,  and  clumsily  patched  and  added  to  when 
the  war  called  for  the  raising  of  unprecedented  sums  of  money. 

Montgomery,  in  his  last  treatise  on  the  subject,  says: 

Federal  income  and  profits  taxation  is  merely  "one  damn 
thing  after  another."  The  average  taxpayer  is  bewildered 
by  a  multitude  of  contradictory  laws,  regulations  and  deci- 
sions. He  is  not  permitted  to  ask  hypothetical  questions  but 
is  told  to  proceed  at  his  peril.  What  is  needed  is  stability 
and  confidence.  The  government  needs  money.  Is  it  not 
possible  for  the  taxpayer  to  pay  and  the  government  to 
receive  money  without  a  continuous,  annoying  and  expensive 
disturbance  of  the  entire  business  and  financial  fabric  of 
the  country? 

The  difficulties  of  the  Treasury  are  infinitely  greater  than 
those  of  any  taxpayer.  The  responsible  officials  now  in  office 
deserve  great  credit  for  standing  by  a  thankless  and  almost 
hopeless  task.  Congress  is  responsible  for  the  present  uni- 
versal feeling  of  dissatisfaction  and  Congress  should  be 
informed  in  no  uncertain  tone  that  taxpayers  and  the 
Treasury  will  stand  so  much  and  no  more.^ 

It  is  quite  probable  that  its  inconveniences  and  injustices 
will  shortly  cause  its  comprehensive  amendment,  in  such  shape 
that  its  complexities  and  obscurities  will  be  avoided  and  a  law 
that  the  ordinary  business  man  can  understand,  will  be  given 
us  instead. 


»For  further  information  on  this,  see  John  Scott  Parker's  "Corporation  Manual, 

*9i7,"    19th   Edition.  ,,  ,,  ,  /•>-.,. 

•"Income  Tax  Procedure,"  by  Robert  H.  Montgomery  (from  the  preface).  This 
work  contains  1282  pages,  and  a  supplement  on  Excess  Profits  Tax  of  351  pages. 
Its  author  is  the  leading  authority  on  the  subject  and  has  followed  it  closely  from 
the  first  laws  in   1909. 


698 


TAXATION 


Review  Questions 


Ji« 


2. 


In  your  locality  is  real  property  assessed  on  its  true  value  or  on 
some  percentage  thereof?  Are  there  any  peculiar  customs  as 
to  such  assessments?  How  may  unfair  assessments  be  cor- 
rected ? 

In  your  locality  how  are  the  amount  and  character  of  the  tax- 
payer's personal  property  ascertained,  and  how  is  it  valued? 
Is  it  fair  ? 

3.  In  your  locality  how  arc  taxes  collected?     How  is  a  tax  title 

acquired?    Does  it  give  a  good  title? 

4.  Explain  the  taxation  in  your  state  of:  (a)  a  foreign  corporation, 

(b)  a  domestic  corporation,  (c)  a  firm:  telling  by  whom  each 
IS  taxed,  the  method  and  rate. 

(1)  Where  it  has   factories  in  different  towns  within  the 

state. 

(2)  Where  it  has  factories,  some  in  and  some  outside  the 

state. 

5.  Suggest  some  remedies  for  overtaxatioa 


PART  XIX 
ARBITRATION 


CHAPTER  XCIV 

ARBITRATION  AND  LAW 


§  624.    Advantages  of  Arbitration 

An  action  at  law  may  be  costly  and  most  unsatisfactory ; 
many  times  men  who  have  the  right  clearly  on  their  side  will 
waive  it  all  rather  than  go  through  the  delay  and  the  expense 
of  litigation.  Arbitration  is  an  expedient  used  frequently, 
though  not  so  often  as  it  should  be,  to  avoid  litigation.  The 
parties  to  a  dispute  may,  at  any  time,  agree  to  submit  their 
differences  to  the  decision  of  one  or  more  disinterested  persons. 
In  many  contracts  it  is  now  provided  that  any  dispute  or  mis- 
understanding as  to  terms  shall  be  thus  settled  by  arbitration. 

The  great  advantage  of  settling  a  dispute  by  arbitration  is 
that  there  is  no  delay  in  securing  a  decision,  and  therefore  the 
loss  of  time  incident  to  a  prolonged  litigation  is  avoided.  A 
further  advantage  is  that  it  saves  the  heavy  costs  incident  to 
most  modern  legal  proceedings.  Another  advantage  is  that 
arbitrators  are  less  likely  to  be  hampered  by  the  technicalities 
of  legal  procedure,  and  hence  their  decision  may  be  nearer 
justice  and  common  sense. 

§  625.     Objections  to  Arbitration 

Arbitration,  like  most  other  human  institutions,  is  imper- 
fect in  its  operations  and  results.  The  arbitrators  are  not  in- 
fallible, and  their  decision,  though  honest  and  well-intentioned, 
may  not  be  really  right ;  or  it  may  be  just  but  contrary  to  the 
letter  of  the  law,  and  in  that  case  the  party  that  has  the  law  on 
his  side  will  feel  that  in  some  way  he  has  lost  out.    The  arbi- 


'  For  form  of  agreement  to  arbitrate,  see  Chapter  CX,  Form  79- 

'701 


702 


ARBITRATION 


ARBITRATION  AND  LAW 


703 


f 


trators  will  have  some  sort  of  hearing  before  they  decide,  and 
the  absence  of  the  technical  rules  of  a  court  will  be  found  to 
have  its  disadvantages  as  well  as  its  advantages,  and  to  be  in 
some  respects  unsatisfactory. 

Whenever  a  dispute  is  settled,  either  by  arbitration  or  by 
litigation,  the  losing  party  is  naturally  dissatisfied  and  in  many 
cases,  the  winning  party  is  dissatisfied  also.  That  is  a  mani- 
festation  of  human  nature  which  cannot  of  course  be  avoided 
by  any  system  of  settling  disputes. 

The  most  serious  objection  to  arbitration  is  that  the  arbi- 
trators cannot  enforce  their  decision.  That  is.  unless  the 
losing  party  voluntarily  submits  to  the  award  against  him,  the 
arbitrators  cannot  collect  damages  or  compel  obedience.  If 
the  losing  party  refuses  to  comply  it  is  necessary  to  go  into  a 
court  and  to  get  its  judgment  to  enforce  the  decision  of  the 
arbitrators. 

§  636.     Statutory  Arbitration 

In  recent  years  methods  of  arbitration  have  been  estab- 
lished by  law  in  many  of  the  states.  Where  that  is  the  case, 
the  parties  may  either  make  their  own  agreement  for  arbitra- 
tion or  resort  to  the  statutory  method,  as  they  choose.  In  the 
agreement  they  make  for  arbitration  they  must  not  violate  the 
statutes;  aside  from  this  they  are  free  to  make  whatever 
arrangement  they  prefer.  In  no  case  is  arbitration,  rather  than 
resort  to  the  courts,  forced  upon  the  parties.  The  state  laws 
merely  prescribe  a  method  of  arbitration  which  they  may  use 
if  they  so  desire,  and  the  general  principles  of  which  they  may 
not  violate. 

One  advantage  in  arbitration  under  the  statutes  is  that  the 

•  award  of  the  arbitrators  is  usually  confirmed  by  the  courts,  as 

part  of  the  procedure,  and  may  be  enforced  just  as  any  other 

court  decision  may  be.    It  is  not  necessary  to  bring  a  suit ;  the 

court  recognizes  the  arbitrators'  decision. 


§627.    Agreement  for  Arbitration 

Arbitration  may  be  agreed  to  after  the  dispute  has  arisen, 
or  it  may  be  embodied  in  the  original  contract,  to  come  into 
play  if  any  difficulty  arises. 

There  are  two  methods  of  arbitration: 

1.  Two  arbitrators  are  appointed  by  the  parties  and  these 
select  a  third  arbitrator  and  the  three  decide,  or,  rather,  two  of 

the  three  decide. 

2.  Two  arbitrators  are  appointed  by  the  parties,  and  if 
they  cannot  agree  on  a  decision,  they  choose  an  umpire.  In 
such  a  case  the  umpire  would  have  to  hear  the  entire  matter, 
and  his  decision  would  prevail. 

The  agreement  to  arbitrate  should  specify  clearly  just  what 
matters  are  to  be  submitted  for  decision,  because  arbitrators 
can  decide  only  on  matters  that  are  actually  submitted  to  them. 
The  agreement  will  be  given  to  the  arbitrators,  and  their  power 
to  decide  will  be  limited  by  what  is  specified  therein.  If  they 
go  beyond  their  powers  and  decide  other  matters,-  then  their 
decision  will  be  enforced  only  so  far  as  it  relates  to  the  points 
specified.  The  parties  may,  however,  agree  to  accept  the  deci- 
sion of  the  arbitrators  on  other  points. 

When  the  arbitrators  have  decided  against  one  of  the 
parties,  they  will  not  necessarily  be  limited  by  the  agreement 
in  adjusting  the  amount  due;  they  have  the  power  to  settle 
on  such  amount  as  they  find  to  be  just.  It  should  also  be 
provided  that  the  award  of  the  arbitrators  may  be  enforced 
by  any  court  as  a  judgment. 

In  drawing  up  an  agreement  of  arbitration  the  parties 
should  go  much  more  into  detail  than  is  usually  the  case.  The 
agreement  requires  a  careful  analysis  of  the  controversy  and 
should  provide  for  the  following  particulars : 

I.  For  the  appointment  of  arbitrators.  (The  usual 
method  is  to  allow  each  party  to  choose  one,  and  to  let  the 
two  choose  a  third.) 


704 


ARBITRATION 


ARBITRATION  AND  LAW 


705 


2.  For  giving  a  full,  clear,  and  orderly  statement  of  the 
definite  questions  which  are  to  be  submitted  to  the  arbi- 
trators. 

3.  That  two  of  the  arbitrators  may  decide  the  matter. 
Otherwise  all  must  agree. 

4.  For  the  payment  of  the  expenses  of  the  arbitration. 
The  arbitrators  may  be  allowed  to  assess  this  if  the  parties 
wish. 

5.  That  the  decision  or  the  award  should  be  in  writing, 
and  signed  by  the  arbitrators. 

6.  That  the  award  of  the  arbitrators  may  be  enforced  as 
a  judgment  by  any  court  of  record. 

7.  The  signing  and  the  acknowledgment  of  the  agreement 
before  a  notary  public,  so  that  it  may  be  entiUed  to  be  filed  in 
court  in  the  same  way  as  a  judgment. 

If  one  of  the  parties  is  a  partnership,  all  of  the  partners 
must  sign,  or  th^^re  must  be  a  written  consent  to  the  agree- 
ment by  those  who  do  not  sign  filed  with  it  If  one  of  the 
parties  is  a  corporation,  there  must  be  a  resolution  of  the 
board  of  directors  authorizing  the  submission  to  arbitration, 
and  a  certified  copy  of  the  resolution  must  be  filed  with  the 
agreement. 


Note: 
I, 


Parties  should  make  sure  that  all  details  are  pro- 
vided for  in  the  agreement  to  arbitrate. 


§  6a8.    Withdrawal  from  Arbitration 

Parties  making  contracts  are  not  allowed  to  stipulate  that 
they  will  not  go  into  court.  Neither  party  can  be  barred  from 
'his  right  to  litigate;  such  a  provision  would  be  contrary  to 
public  policy  and  could  not  be  enforced.  Therefore,  either 
party  may  withdraw  from  the  arbitration,  and  commence  a 
suit  in  court  at  any  time  before  the  arbitrators  have  reached 


their  final  decision,  unless  the  law  of  tlie  particular  state  for- 
bids it. 

If  one  of  the  arbitrators  named  dies  before  the  final  deci- 
sion is  reached,  that  ends  the  proceedings.  New  arbitrators 
must  be  appointed,  if  the  parties  still  desire  to  arbitrate.  If 
one  of  the  parties  dies  while  the  arbitration  is  pending,  the 
continuance  of  the  arbitration  then  depends  on  whether  the 
law  would  allow  his  executors  or  administrators  to  go  on  with 
a  suit  over  the  same  controversy. 

§  629.    Hearings 

The  arbitrators  must  give  all  the  parties  reasonable  notice 
of  hearings,  but  if  a  party  has  been  properly  notified  and  fails 
to  attend  a  hearing,  he  need  not  be  notified  of  the  time  to 
which  it  has  been  adjourned.  Any  award  made  without  giving 
notice  may  be  set  aside.  All  the  arbitrators  must  be  present  at 
each  hearing.  As  a  matter  of  course,  each  party  is  entitled 
to  present  his  case.  If  this  is  not  allowed,  it  makes  the  arbi- 
tration void  and  of  no  effect. 

§  630.    Signing  the  Award 

If  the  statute  or  the  agreement  under  which  the  arbitration 
proceedings  are  conducted  provides  that  the  award  must  be 
in  writing,  the  document  must  be  written  out  and  signed  by 
all  the  arbitrators.  A  provision  to  this  effect  should  be  in- 
cluded in  every  arbitration  agreement.  This  is  for  convenience 
of  proof  in  case  such  evidence  is  needed. 

§  631.    Enforcing  the  Award 

It  should  be  provided  in  the  agreement  that  the  award  of 
the  arbitrators  may  be  entered  as  a  judgment  of  the  court; 
otherwise  the  arbitrators  have  no  way  of  enforcing  their  deci- 
sion.    For  instance,  if  the  arbitrators  decided  that  one  of 


I!i 


706 


ARBITRATION 


4. 


the  parties  was  to  pay  the  other  $5,000,  they  could  not  en- 
force  it  by  execution,  as  a  court  does.  On  this  account  it 
would  be  necessary  for  the  party  to  whom  the  money  had  been 
awarded,  to  get  the  help  of  the  court  in  enforcing  the  decision 
of  the  arbitrators.  Such  a  suit,  however,  would  be  a  very 
simple  matter.  A  court  would  not  go  into  the  merits  of  the 
controversy;  the  only  question  before  the  court  would  be: 
"Was  the  award  legally  made  ?" 

Note: 

Arbitration  is  better  than  litigation  but  not  as  good 
as  a  friendly  settlement.  * 'Agree  with  thine  ad- 
versary quickly,  whilst  thou  art  in  the  way  with 
him. "    Matthew  5  ;^5. 


I. 
2. 


4. 


5- 


ARBITRATION  AND  LAW 


Review  Questions 


707 


What  is  the  object  of  arbitration?    Its  advantages? 

What  is  the  reason  that  arbitration  is  so  seldom  used?    What  is 

the  difficulty  about  enforcing  an  arbitration  ? 
What  is  the  advantage  of  statutory  arbitration?    What  is  meant 

by  statutory  arbiti|f tion  ? 
If  an  agreement  is  made  in  a  contract  that  any  disputes  shall  be 

settled  by  arbitration,  can  the  agreement  be  enforced? 
What  details  should  be  provided  in  an  agreement  to  arbitrate? 

6.  Why  can  a  party  withdraw  from  an  arbitration  at  pleasure? 

7.  What  can  be  done  to  enforce  an  award  of  arbitration? 

8.  What  matters  would  be  ground  for  setting  an  award  aside? 

9.  In  case  of  arbitration  could  either  party  or  both  employ  lawyers? 

Would  the  employment  of  lawyers  be  of  any  advantage? 


Ih 


S  632.    Setting  Aside  the  Award 

After  the  final  decision  has  been  fairly  made,  it  may  be 
set  aside  only  by  the  agreement  of  the  parties.  If,  however, 
the  award  was  not  fairly  reached,  but  was  influenced  by  fraud 
or  falsehood,  then  either  party  to  the  arbitration  may  appeal 
to  a  court  to  have  it  set  aside. 

The  arbitrators  are  required  to  use  their  own  judgment 
in  reaching  a  decision.  They  may  not  submit  the  case  to  some- 
one else  for  decision.  If  they  disagree  as  to  the  amount  to 
be  paid  by  the  losing  party,  they  must  not  settle  the  dispute 
by  adding  together  the  estimates  of  the  different  arbitrators 
and  then  dividing  it  by  the  number  of  arbitrators. 

If  they  do  either  of  these  things,  either  party  may  have 
the  award  set  aside.  The  award  must  also  be  a  final  and  com- 
plete settlement  of  all  matters  submitted  to  the  arbitrators 
under  the  agreement.  If  they  leave  anything  open  for  future 
controversy,  the  award  may  be  set  aside.  The  object  of  arbi- 
tration is  to  settle  all  disputes,  hence  it  should  be  compre- 
hensive and  conclusive. 


PART  XX 


LAW  AND  LAWYERS 


CHAPTER  XCV 


STUDY  OF  LAW  FOR  BUSINESS  MEN 


§  633.    Law  Books  for  Study 

Some  readers  of  this  work  may  wish  to  pursue  their  legal 
study  a  little  further,  not  with  the  idea  of  becoming  lawyers, 
but  in  order  to  know  a  little  more  on  the  general  subject  of 
law.  These  would  do  well  to  read  two  small  books,  "An 
Introduction  to  the  Study  of  Law,"  by  Woodruff,  and  "Com- 
monsense  in  Law,"  by  Vinogradoff.  After  these  it  would  be 
well  to  take  up  Walker's  "American  Law,"  or  the  "Elements 
of  Law"  by  Clarke,  or  Smith's  "Elementary  Law."  These 
are  works  prepared  for  the  use  of  law  students  and  are  in- 
tended to  give  a  broad  view  of  the  whole  field.  Then,  for  one 
who  wishes  to  read  a  thoroughly  high-class  law  book  on  the 
fundamental  principles  of  our  legal  system  it  would  be  well 
to  get  Cooley*s  "Constitutional  Limitations." 

All  of  diese  books  go  into  the  matter  more  from  the 
lawyer's  standpoint  than  does  the  present  work.  The  student 
should  then  read  some  manual  on  corporation  law  and  then 
one  or  more  of  the  best  text-books  on  those  particular  branches 
of  business  in  which  he  is  especially  interested.  In  choosing 
text-books  it  is  prudent  to  examine  carefully  before  buying. 
Some  books  are  unduly  technical  and  are  difficult  reading  for 
the  layman.  Look  up  the  different  text-books  upon  the  subjects 
in  which  you  are  interested,  and  see  if  you  can  read  them 
satisfactorily,  and  to  advantage. 

Formerly  all  law  students  read  Blackstone's  "Com- 
mentaries."   At  present  it  is  used  only  for  reference.    It  is 

711 


712 


LAW  AND  LAWYERS 


LAW  FOR  BUSINESS  MEN 


713 


wortll  reading  for  its  literary  and  historical  contents,  but  it 
is  not  recommended  for  any  practical  use  nowadays. 

§  634.    Law  Books  for  a  Busy  Man 

A  small  law  library  for  consultation  and  reference  is  help- 
ful and  at  times  of  much  advantage.  The  science  of  the  law 
is  all  recorded  in  books  of  law ;  the  difficulty  is  to  find  what 
is  wanted  when  it  is  needed.  A  business  man's  library  of 
law  books  should  probably  have  the  revised  statutes  of  his 
own  state.  It  might  well  have  the  best  text-books  on  those 
subjects  that  immediately  concern  his  own  business.  For 
instance,  in  a  real  estate  office  there  should  be  some  of  the 
better  text-books  relating  to  real  estate  law.  In  any  mercantile 
establishment  there  might  well  be  a  few  text-books  on  sales 
and  contracts;  in  a  factory,  or  where  many  men  are  employed, 
some  works  that  would  give  some  idea  of  modem  legislation 
on  employers'  liability,  workmen's  compensation,  and  the  like. 
In  a  bank  there  should  be  text-books  on  the  laws  of  banking. 
In  the  library  of  any  corporation  there  should  be  some  general 
manual  on  corporation  law  and  some  compilation  of  the  cor- 
poration law  and  practice  of  the  particular  state. 

If  it  is  desired  to  go  more  fully  into  the  law,  one  of 
the  great  encyclopedias  of  the  law  should  be  purchased.  From 
these  some  information  can  be  found  on  any  legal  topic  that 
comes  up.  It  would  be  well  to  have  also  a  comprehensive  law 
dictionary  which  explains  briefly  the  meaning  of  all  the  tech- 
nical terms  used  in  the  profession.  Law  books  are  expensive 
and  it  is  easy  to  tie  up  a  good  deal  of  money  in  a  library. 

§  635.    The  Case  Method  of  Legal  Study 

The  generally  accepted  method  of  professional  study  of  law 
is  by  "the  case  method,"  and  lawyers  in  investigating  any 
particular  point  that  arises  in  practice  always  consult  the  re- 
ports, using  text-books  and  encyclopedias  merely  to  get  a  line 


on  the  cases  in  point.    This  method  is  not  available  for  the 
layman  for  the  following  reasons: 

1.  Few  laymen  could  afford  to  keep  up  the  reports,  di- 
gests, and  tables  of  citations  for  even  the  one  state  in  which 
they  live. 

2.  No  layman  could  properly  appraise  the  weight  to  be 
given  a  particular  decision,  which  depends  partly  on  the  par- 
ticular court,  partly  on  the  personality  of  the  judge,  and  partly 
on  the  presentment  of  the  case  made  by  more  or  less  skilled 
counsel. 

3.  No  layman  whose  time  is  worth  anything  for  business 
purposes  can  afford  to  go  into  the  long  and  careful  search 
necessary  to  find  out  a  point  that  involves  anything  more  than 
elementary  law. 

4.  In  many  cases  decisions  are  reached  or  are  swayed  by 
deficiencies  of  evidence  or  technical  defects  of  presentment, 
which  only  a  skilled  lawyer  could  understand  or  allow  for  in 
estimating  the  weight  to  be  given  the  final  judgment. 

It  has  happened  many  times  that  even  the  highest  courts 
have  been  influenced  by  their  sympathies  in  cases  where  the 
strict  rules  of  the  law  would  work  hardship  to  individuals. 
It  is  a  proverb  in  the  profession  that  "hard  cases  make  bad 
law.*'  * 

§  636.    Taking  a  Law  Course 

If  a  man  can  give  the  time  and  study  needful  to  take  a 
longer  or  shorter  course  of  professional  law,  merely  for  its 
value  in  business  and  in  understanding  our  social  and  political 
fabric,  it  will  prove  abundantly  worth  while. 

Brander  Matthews  in  a  review  of  "Law  and  the  Family," 
by  Judge  Robert  Grant  says:* 


*  Briggs  V.  Spauldingr,  141  U.  S.  132. 

»  Book  Review  of  Tm  New  York  Times,  November  30,  1919. 


I^il 


fl 


714 


LAW  AND  LAWYER^ 


I  spent  two  years  in  the  Columbia  Law  School,  and  even 
if  I  did  not  make  any  strenuous  effort  to  master  the  science 
of  jurisprudence  I  did  derive  two  indisputable  benefits  from 
my  attendance  upon  the  illuminating  lessons  of  Professor 
Dwight,  a  past-master  in  the  art  of  exposition. 

The  first  of  these  benefits  was  the  recognition  of  the 
fact  that  a  little  knowledge  of  the  law  may  be  a  very  danger- 
ous thing,  and  that  therefore  it  is  always  the  part  of  wisdom 
to  secure  the  advice  of  a  competent  lawyer  whenever  need 
arises  for  his  service. 

The  second  benefit  was  the  acquisition  of  a  fair  familiar- 
ity with  the  technical  terms  of  the  law.  so  that  I  can  converse 
with  my  learned  counsel  without  his  having  to  explain  to  me 
the  nature  of  a  cestui  que  trust,  and  the  difference  between 
per  stirpes  and  per  capita. 

A  third  consequence  of  my  law  course  was  the  conviction 
it  would  be  well  if  an  elementary  knowledge  of  the  law 
(such  as  I  had  gained)  could  be  more  easily  attained  and 
more  generally  acquired.  In  many  of  our  colleges  the  program 
of  studies  is  already  overcrowded;  yet  I  do  not  see  why 
undergraduates,  who  do  not  intend  to  be  lawyers,  should  not 
have  an  opportunity  to  master  the  fundamental  principles  of 
law,  just  as  undergraduates  who  do  not  intend  to  be  chemists 
or  physicists  are  now  encouraged  to  master  the  fundamental 
principles  of  chemistry  and  of  physics. 

"Ignorance  of  the  law  excuseth  no  man."  so  runs  the 
ancient  maxim;  but  how  is  any  man  to  dispel  his  ignorance? 
Not  by  skimming  through  the  misleading  volume  of  "Every 
Man  His  Own  Lawyer"— for  the  result  of  reliance  on  this 
is  very  likely  to  be  a  prompt  justification  of  the  cruel  saying 
that  "the  man  who  is  his  own  lawyer  has  a  fool  for  his 
client."  Now  and  again  there  appears  a  book  by  which  any 
man — and,  for  that  matter,  any  woman — may  profit,  a  book 
in  which  a  learned  practitioner,  barrister  or  judge  talks  about 
law  for  the  benefit  of  the  layman. 


LAW  FOR  BUSINESS  MEN 


715 


in  commercial  law  of  more  or  less  thoroughness  are  given. 
It  would  seem  that  the  narrow  limits  of  so-called  commercial 
law  should  be  so  expanded  as  to  give  the  student  a  wider 
outlook  on  the  law  as  a  whole  and  on  the  function  of  the 
lawyer  in  our  modem  world  of  affairs. 

Some  short-sighted  members  of  the  legal  profession  object 
to  the  study  of  law  by  the  layman  from  the  limited  trade-union 
view  that  the  knowledge  so  obtained  will  diminish  the  fees 
paid  the  profession.  As  a  matter  of  fact,  a  layman  who  knows 
something  of  the  law  is  more  likely  to  employ  a  lawyer  when 
it  is  necessary  and  to  pay  less  grudgingly  than  the  layman 
who  is  ignorant  of  the  first  principles  of  law.  It  has  happened 
many  times  that  capable  lawyers  have  been  called  to  high 
places  in  business,  financial,  and  railroad  administration.  It 
is  not  of  record,  though,  that  these  by  reason  of  their  legal 
information  cut  down  the  regular  legal  force  in  the  enterprises 
of  which  they  took  charge,  or  that  the  enterprises  so  directed 
in  any  case  employed  less  capable  or  cheaper  counsel.  Rather 
is  the  legal  profession  advantaged  both  in  dignity  and  mone- 
tary appreciation  when  its  employment  is  directed  by  full 
knowledge  of  the  capabilities  and  likewise  the  limitations  of 
the  practicing  lawyer. 


II 


I: 


1 


§  637.    Counes  in  Commercial  Law 

In  many  of  the  better  business  schools  and  in  the  schools 
of  business  administration,  this  need  is  recognized  and  courses 


.{ 


CHOOSING  A  LAWYER 


717 


CHAPTER  XCVI 

CHOOSING  A  LAWYER 

§  638.    The  Legal  Profession 

It  is  not  possible  to  do  much  business,  to  acquire  much 
property,  or  even  to  live  one's  life  without  sooner  or  later 
having  to  do  with  the  law  and  with  courts  of  law;  and  this 
involves  relations  with  the  legal  profession. 

Under  these  circumstances,  it  is  well  that  the  citizen, 
especially  if  he  owns  property,  should  know  with  what  manner 
of  man  he  has  to  deal  when  he  employs  a  lawyer  or  has  to 
negotiate  or  contend  with  someone  else  who  has  employed  a 
lawyer.  The  common  idea  of  a  lawyer,  the  scheming  attorney 
of  fiction  and  the  stage,  is  merely  a  caricature.  His  prototype 
is  occasionally  met,  but  the  average  lawyer  is  morally  and 
intellectually  on  the  same  plane  as  the  average  business  man, 
with  the  advantage  of  special  training  continued  year  after 
year.  The  better  lawyer  is  a  superior  type,  and  the  law  has 
always  numbered  in  its  ranks  the  best  brains  and  best  blood  of 
our  country. 

It  is  to  be  remembered,  however,  that  while  the  law  as  a 
profession  has  a  peculiar  appeal  to,  and  fascination  for,  am- 
bitious, intellectual  young  men,  it  also,  unfortunately,  appeals 
to  a  great  many  who  are  ambitious  but  only  superficially 
clever;  who  are  neither  intellectual  nor  high-principled.  The 
ability  to  prepare  for  and  pass  a  legal  examination  is  no 
guaranty  that  after  admission  to  the  bar  the  young  man  has 
the  wisdom,  judgment,  and  moral  insight  to  make  him  a  safe 
adviser. 

Also  the  legal  profession  is  overcrowded,  and  this  leads 

716 


to  an  overeagerness  to  secure  clients  and  tends  to  lower  the 
standards  of  the  profession.  To  quote  from  the  annual  ad- 
dress of  the  president  of  the  American  Bar  Association : 

The  ease  with  which  admission  to  the  bar  is  secured  in 
many  jurisdictions  and  the  attractions  of  a  career  which 
affords  a  living  without  manual  labor  have  crowded  the  Bar 
with  more  lawyers  than  are  necessary  to  do  business.  Of 
the  114,000  lawyers  in  the  United  States  according  to  the 
census  of  19 10,  a  very  considerable  part  are  not  needed  for 
the  due  administration  of  justice.  If  that  business  were 
conducted  like  the  business  of  any  great  industrial  or  trans- 
portation company  which  is  striving  for  the  highest  efficiency 
at  the  least  cost  in  order  to  compete  successfully  with  its 
rivals,  a  very  considerable  percentage  of  the  114,000  would 
be  discharged  ....  We  at  the  bar  are  not  producers.  Su- 
perfluous lawyers  are  mere  pensioners  and  drags  upon  the 
community  and,  upon  all  sound  economic  principles,  ought  to 
be  set  to  some  other  useful  work.  There  is  plenty  of  work 
for  them  to  do  on  the  farms  of  the  country. 

The  layman  puts  it  more  harshly: 

There  are  vastly  more  lawyers  than  we  have  any  use 
for — too  many  striving  to  make  a  living  out  of  other  people's 
troubles — and  it  is  therefore  to  their  advantage,  when  they 
get  a  case,  to  make  as  much  out  of  it  as  possible,  which  means 
that  instead  of  getting  their  client  out  of  trouble,  and  saving 
his  money,  they  greatly  prolong  the  agony  and  relieve  him  of 
as  much  money  as  possible.^ 

§  639.     The  Domination  of  Precedent 

It  is  also  to  be  remembered  that  the  whole  education  and 
training  of  the  young  lawyer  is  shaped  to  make  him  conserva- 
tive and  non-progressive.  Any  youthful  ardor  and  enthusiasm 
with  which  he  may  enter  is  chilled  by  the  medieval  lore  he 
must  master  and  by  the  absence  of  any  opening  for  initiative. 


»"My  Life,"  by  Hiram  S.  Maxim,  page  30^ 


7i8 


LAW  AND  LAWYERS 


CHOOSING  A  LAWYER 


719 


imagination,  or  discovery.  Business  and  the  other  professions 
have  learned  better  ways.  Even  theology  has  shaken  her  gar- 
ments and  the  ministers  of  religion  have  found  "new  wine  for 
old  bottles."  The  followers  of  the  law  still  hold  that  the 
fathers  knew  best,  not  only  for  their  own  times  but  also  for 
ours,  and  youths  who  should  be  moral  and  intellectual  leaders 
of  their  generation  become  apologists  for  outworn  laws  and 
effete  legal  practices.  Precedents  dominate  and  the  "case  on 
all  fours*'  has  greater  weight  than  the  profoundest  grasp  of 
principle  or  the  clearest  demonstration  of  right  and  justice. 
Dean  Swift  cynically  wrote  many  years  ago  that  the  law 
was  the  only  calling  in  which  the  fact  that  a  matter  had  once 
been  done  wrong  was  considered  a  sufficient  reason  why  it 
should  always  be  done  wrong. 

Both  judge  and  advocate  feel  relieved  of  responsibility 
when  they  find  a  case  "on  all  fours"  with  the  one  before  them. 
Hence,  the  eyes  of  the  law  student  are  turned  to  the  past,  not 
to  the  future,  to  the  search  for  cases  rather  than  to  the  develop- 
ment of  principles,  and  as  a  result,  while  all  the  other  sciences 
move  forward,  the  practice  of  the  law  is  still  in  the  ox-cart 
stage. 

In  an  effort  to  arouse  the  bar  from  its  conservatism  and 
inertia  to  a  more  lively  sense  of  the  splendid  possibilities  of  its 
concerted  action,  Dean  Vance  of  the  University  of  Minnesota 
Law  School  said: 

Bluntly  put,  the  American  lawyer  has  proved  a  failure.  In 
no  other  free  and  civilized  country  are  the  laws  so  ill- 
administered  as  in  these  United  States.  We  lead  the  world 
in  most  of  the  great  struggles  mankind  is  making,  but  in 
the  administration  of  the  law  America  lags  two  generations 
behind  the  rest  of  the  civilized  world.  No  constructive  re- 
forms of  a  comprehensive  kind  have  been  seriously  attempted 
since  the  days  of  David  Dudley  Field,  now  passed  a  half 
century  and  more.* 


§  640.    The  Conservatism  of  the  Law 

After  admission  to  the  bar,  the  young  lawyer  naturally 
practices  what  he  has  been  taught.  Self-interest  holds  him  a 
conservative  and  opposed  to  progress.  Vested  rights  and 
established  institutions  become  sacred  in  his  eyes.  From  the 
older  men  so  trained  our  judges  are  selected,  and  then  we 
marvel  that  progressive  social  legislation  or  legal  reform  finds 
no  favor  in  their  eyes.  It  is  probably  the  most  serious  fault 
of  the  existing  system  of  law  that  it  takes  thousands  of  our 
brightest  young  men  and  deliberately  stifles  their  progressive 

tendencies. 

To  quote  from  an  article  in  a  well-known  legal  periodical : 

The  legal  profession  is  naturally  so  conservative  that  it  is 
with  difficulty  that  any  innovation,  no  matter  how  meritori- 
ous, can  receive  anything  like  sufficient  approval  to  be 
adopted.  Every  other  profession  in  the  world  aside  from 
ours  has  been  almost  remade  within  the  last  quarter  of  a 
century,  while  we  have  made  practically  no  substantial 
change  in  our  rules  of  procedure  and  practice.  We  con- 
stantly— courts,  lawyers,  bar  associations,  and  everybody — 
complain  of  our  cumbersome  methods  and  the  delay  and  ex- 
pense incident  to  them,  and  yet  we  go  on  using  them  because 
we  have  grown  up  with  them,  and  it  is  easier  to  continue 
to  use  the  legal  wheelbarrow  and  ox-cart  than  it  is  to  change 
it  for  the  expeditious  legal  automobile.^ 

§  641.     Ethical  Standards  of  the  Bar 

The  ethical  standards  of  the  profession  are  likewise  dis- 
tinctly medieval.  The  following  is  the  ideal  of  the  law  as  set 
forth  by  Elihu  Root  in  his  address  to  the  American  Bar  Asso- 
ciation, August  30,  19 16: 

There  is  another  evil  arising  from  defective  education. 
These  half-trained  practitioners  have  had  little  or  no  oppor- 
tunity to  become  imbued  with  the  true  spirit  of  the  profes- 


III 


:) 


1 


^"Justice  and  the  Poor,"  by  Reginald  Heber  Smith,  page  37. 


*  Case  and  Comment  for  July,  1917. 


!ii 


7ao  LAW  AND  LAWYERS 

sion.  That  is  not  the  spirit  of  mere  controversy,  of  mere 
gain,  of  mere  individual  success.  To  the  student  of  the  law, 
there  come  from  Hortensius  and  Cicero,  and  Malesherbes 
and  De  Seze,  and  Erskine  and  Adams,  from  all  the  glorious 
history  of  the  profession  of  advocacy,  great  traditions  and 
ethical  ideals  and  lofty  conceptions  of  the  honor  and  dignity 
of  the  profession,  of  courage  and  loyalty  for  the  maintenance 
of  the  law  and  the  liberty  it  guards.  It  is  to  a  Bar  inspired 
by  these  traditions,  imbued  with  this  spirit,  not  commercial- 
ized, not  playing  a  sordid  game,  not  cunning  and  subtle  and 
technical,  or  seeking  unfair  advantage — a  Bar  jealous  of  the 
honor  of  the  profession  and  proud  of  its  high  calling  for  the 
maintenance  of  justice — that  we  must  look  for  the  effective 
administration  of  the  law. 

How  far  this  is  from  the  actual  practice  of  the  law  anyone 
at  all  familiar  with  modem  conditions  is  sadly  aware.  And 
those  responsible  for  the  lowered  ethical  ideals  are  not  only 
the  half-trained.    In  the  same  address  Mr.  Root  says: 

On  the  other  hand,  it  is  the  business  of  the  lawyer  to 
conduct  a  case  so  that  his  client  will  win.  His  relations  to 
the  case  tend  to  give  him  a  one-sided  view  of  what  is  just 
and  fair  in  that  case.  The  ardor  and  stress  of  conflict  are 
not  favorable  to  abstract  considerations  of  justice.  He  is 
concerned  in  exhibiting  the  facts  which  will  help  his  client; 
in  stating  the  law  on  which  his  own  side  relies;  in  breaking 
down  witnesses  against  him  and  strengthening  witnesses  in 
his  favor.  On  each  side  the  counsel  plays  the  game  for  all 
it  is  worth,  and  sometimes  superiority  of  counsel  outweighs 
superiority  of  merit 

The  best  lawyers,  when  they  govern  themselves  by  a  code 
higher  than  the  legal  rule  of  ethics,  tacitly  admit  the  low  stan- 
dards of  the  bar.  It  is  said  of  Lincoln  that  he  would  never  take 
a  case  when  he  did  not  believe  his  client  to  be  in  the  right.  He 
would  not  make  himself  the  apologist  for  criminals  who  were 
defraudiner  his  neighbors.     There  are  many  others  in  the 


CHOOSING  A  LAWYER 


721 


legal  profession,  more  than  the  layman  knows  of,  who  follow 
Lincoln's  code  of  ethics  in  regard  to  crooked  clients.  It  fol- 
lows that  if  Lincoln  and  those  who  decline  to  aid  wrong-doers 
are  right  in  their  position,  then  the  rest  of  the  profession  is 
wrong. 

§643.    The  Criminal  Lawyer 

To  avoid  being  misunderstood,  it  should  be  said  that  there 
is  no  intrinsic  impropriety  under  our  administration  of  justice 
in  any  lawyer's  defending  any  criminal.  The  accused  man 
before  the  court  has  a  right  to  be  represented  by  counsel,  to 
have  his  witnesses  heard,  his  case  presented,  and  to  be  pro- 
tected from  illegal  pressure.  It  is  therefore  entirely  proper 
for  a  reputable  lawyer  to  represent  him. 

While  all  this  is  true,  there  is  a  vast  difference  between 
what  an  absolutely  high-principled  lawyer  would  do  in  the 
defense  of  a  criminal  and  what  the  usual  criminal  practitioner 
will  do.    At  the  time  the  late  President  McKinley  was  killed, 
his  assassin  was  defended  by  one  of  the  most  able  lawyers  at 
the  New  York  bar.    The  assassin  had  all  his  legal  rights  pro- 
tected, he  had  a  fair  trial,  he  had  absolute  justice,  he  was  fairly 
convicted,  but  it  is  not  on  record  that  any  other  criminal  ever 
employed  the  eminent  gentleman  who  defended  him.     Male- 
factors of  wealth  do  not  want  justice.    It  is  certain  that  when 
such  a  client  comes  before  the  courts  he  does  not  employ  any 
lawyer  who  will  do  no  more  than  make  sure  that  he  has  a 
just  trial  and  present  every  right  of  defense  to  which  he  is 
legally  entitled.     Hence,  most  reputable  lawyers  fight  shy  of 
all  criminal  cases  and  leave  them  to  men  of  easy  conscience 
and  few  scruples  as  to  the  use  of  any  means  to  defeat  justice. 

§  643.     Selecting  a  Lawyer 

The  man  who  takes  an  active  part  in  life  will  surely  have 
need  of  a  legal  adviser.    It  is  much  cheaper  to  pay  a  lawyer  to 


733 


LAW  AND  LAWYERS 


CHOOSING  A  LAWYER 


723 


keep  one  out  of  litigation  than  to  fight  a  case  in  court,  though 
this  latter  cannot  always  be  avoided.  Out  of  the  114,000 
lawyers  in  the  United  States  there  are  to  be  found  many  able, 
high-principled,  and  conscientious  men  who  will  make  their 
clients'  business  their  own  and  advise  rightly,  even  to  their 
own  disadvantage.  At  the  same  time  it  is  a  great  mistake 
to  minimize  the  difficulties  in  the  way  of  making  a  wise  selec- 
tion of  a  lawyer. 

In  most  cases  the  legal  adviser  is  selected  by  reason  of 
family  or  social  connection ;  and  possibly  this  is  as  good  a  way 
as  any  other.  Usually  those  who  have  known  a  man  all  his 
life  are  not  deceived  as  to  his  character.  There  are  times, 
however,  when  it  becomes  necessary  to  select  a  lawyer  without 
any  of  these  influences  and  then  the  problem  is  not  an  easy 
one.  It  is  usual  in  such  cases  to  ask  the  advice  of  friends. 
The  friends  usually  recommend  someone  with  whom  they  have 
had  family,  social,  or  business  relations,  and  the  result  is  some- 
times satisfactory. 

It  would  be  much  better  for  the  business  man  not  to  wait 
until  trouble  comes  to  select  his  lawyer,  but  to  secure  one  in 
advance  who  is  competent,  trustworthy,  and  conscientious,  and 
to  arrange  to  have  him  as  a  regular  adviser.  An  intelligent 
lawyer  is  usually  a  good  business  man,  and  frequent  con- 
sultations with  the  right  kind  of  lawyer  will  prove  of  no  small 
advantage. 

If  it  is  possible,  a  man  may  well  go  to  an  older  lawyer  who 
for  good  reasons  is  unable  to  take  the  business  himself,  and 
ask  him  to  recommend  some  lawyer  who  could  be  retained  as 
permanent  counsel,  giving  him  some  idea  of  what  the  require- 
ments would  be.  A  judge  has  an  excellent  opportunity  to 
know  the  lawyers  who  practice  before  him  and  to  ascertain 
their  qualifications  and  degree  of  ethical  advancement.  Every 
lawyer  has  professional  friends  and  associates  who  are 
Straightforward  and  whom  he  would  trust  with  his  own  busi- 


ness. A  business  man  of  experience  could  also  recommend 
some  lawyers  whom  he  knew  to  be  reliable. 

Ordinarily  the  selection  of  a  lawyer  need  not  be  hurried. 
If  suit  is  to  be  brought,  usually  a  period  of  years  must  elapse 
before  the  claim  is  outlawed,  and,  unless  there  is  some  other 
condition  that  calls  for  prompt  action,  all  the  time  needed  may 
be  taken  for  the  selection  of  an  attorney.  When,  however,  one 
is  made  defendant  in  a  suit,  he  should  get  in  touch  with  his 
lawyer  without  delay  as  there  is  usually  much  for  the  attorney 
to  do  in  preparing  the  case,  and,  as  a  rule,  some  action  is 
necessary  within  twenty  days  from  service  of  notice. 

It  should  be  remembered  that  primarily  lawyers  should  be 
employed,  not  to  conduct  litigation  but  to  avoid  litigation. 
Litigation,  generally  speaking,  is  like  war,  a  destructive  and 
unsatisfactory  expedient.  Two  prominent  New  York  lawyers 
express  themselves  as  follows: 

Jerome  S.  Secord  says: 

When  matters  in  dispute  have  actually  arisen  and  the 
transaction  has  already  taken  place,  care  should  be  taken  to 
select  an  attorney  who  has  the  reputation  of  keeping  his 
clients  out  of  litigation  rather  than  getting  them  in,  as  I 
firmly  believe  the  attorneys  can  do  more  to  prevent  litigation 
than  anyone  else,  and  that  should  be  their  aim. 

Ednor  A.  Marsh  says: 

I  have  spent  over  twenty-five  years  trying  to  keep  my 
clients  out  of  litigation  and  think  I  have  attained  some  suc- 
cess in  that  regard.  As  a  result  of  that  experience,  I  believe 
there  is  only  one  effective  method  of  bringing  about  this  very 
desirable  result.  I  have  almost  invariably  found  that  if  the 
other  side  was  in  the  hands  of  a  high-class  lawyer  we  could, 
by  honest  effort,  reach  some  ground  upon  which  the  matter 
could  be  settled. 


'D 


724 


LAW  AND  LAWYERS 


CHOOSING  A  LAWYER 


72s 


ii 


Ex-Governor  Baldwin  of  Connecticut  says: 

A  large  part  of  every  lawyer's  business  is  to  advise 
against  bringing  suits,  or  how  to  act  so  as  to  avoid  litigation. 
Here  he  uses  what  is  practically  almost  an  absolute  power, 
for  his  clients  come  to  him  because  they  trust  in  his  judg- 
ment, rather  than  their  own,* 

Lastly  Abraham  Lincoln  said,  and  the  American  Bar  Asso- 
ciation uses  it  as  an  introduction  to  its  Canons  of  Ethics: 

Discourage  litigation.  Persuade  your  neighbors  to  com- 
promise whenever  you  can.  Point  out  to  them  how  the 
nominal  winner  is  often  the  real  loser— in  fees,  expenses, 
and  waste  of  time  As  a  peacemaker  the  lawyer  has  a  su- 
perior opportunity  of  being  a  good  man. 

§  644.    Lawyers'  Compensation 

In  employing  an  attorney,  it  is  best  to  be  entirely  frank 
with  him.  The  contract  which  the  client  is  about  to  make  is 
for  legal  service  for  which  he  expects  to  pay.  It  is  not  possible 
to  have  an  established  market  price  for  legal  services  as  is  the 
case  with  more  material  commodities.  Some  lawyers  presume 
on  this  fact  and  charge  extortionate  fees.  In  the  same  city  the 
fees  of  different  practitioners  may  be  as  far  apart  as  $100  and 
$1,000  for  the  same  services.  There  may  be  a  similar  differ- 
ence in  the  value  of  the  services  secured,  but  this  is  not 
always  the  case.  When  engaging  an  attorney,  either  as 
permanent  counsel  or  for  a  single  matter  of  business,  it  will 
save  trouble  and  misunderstanding  to  ask  him  frankly  what 
he  means  to  charge. 

Some  services,  such  as  incorporating  a  company,  drafting 

*a  will,  and  the  like,  can  be  estimated  positively  and  a  definite 

price  can  be  given.    In  other  matters,  as  for  the  conduct  of  a 

case,  it  is  not  possible  to  state  definitely  in  advance  what  the 

■ I  ■— — w> 

*  "The  Young  Man  and  the  Law/*  by  Simeon  E.   Baldwin,  page  69. 


cost  will  be.  Almost  every  lawyer  has  a  certain  time  rate, 
however,  and  grades  his  prices  on  the  amount  of  time  that  it 
requires.  Usually,  time  spent  in  consultation  or  in  the  lawyer's 
office  will  have  one  price,  and  time  spent  in  the  trial  or  the 
argument  of  the  case  will  be  rated  at  a  much  higher  price.  If 
a  lawyer  states  what  he  charges  for  his  time  in  preparing  a 
case  and  what  he  will  charge  when  on  trial,  it  is  possible  to 
get  some  rough  idea  of  what  the  proposed  litigation  is  likely 

to  cost. 

A  good  plan  is  to  arrange  for  a  yearly  consultation  fee, 
which  gives  the  privilege  of  consulting  on  any  matters  which 
come  up.  Then  it  should  be  understood  that  for  actual  legal 
work,  negotiating,  drawing  contracts,  or  conducting  litigation, 
regular  prices  are  to  be  charged. 

It  is  to  be  borne  in  mind  that  in  this  discussion  of  lawyers* 
compensation,  the  prices  paid  specialists  or  famous  trial 
lawyers,  or  men  who  work  for  wealtliy  clients  and  wealthy 
corporations  arc  not  considered.  Usually  these  charge  all  that 
the  traffic  will  bear  and  sometimes  more.  Their  services  are 
luxuries  which  cannot  be  afforded  by  the  average  business  man. 


CHAPTER  XCVII 
LAW  AS  A  VOCATION 
S  64s.    Necessity  of  the  Work  of  a  Lawyer 

It  is  not  easy  to  conceive  of  any  form  of  the  administration 
of  justice  m  which  the  aid  of  those  skiUed  in  the  law  would 
not  be  required.  The  administration  of  the  law.  like  every 
other  soaal  service,  demands  specialists  who  have  prepared 
Amselves  and  have  been  trained  for  this  particular  work. 
Other  thmgs  being  equal,  a  case  presented  by  a  competent 
counsel  would  have  the  advantage  in  every  particular  from 
the  first  to  the  last  in  the  judicial  consideration  of  the  cause 
Of  action. 

It  is  not  easy  to  convey  in  few  words  a  true  impression 
of  the  enormous  importance  of  the  attorney  in  our  system 
of  achieving  justice,  but  the  mention  of  the  broad  outlines 
of  his  work  IS  suggestive.    He  must  start  the  case  properly 
by  satisfying  all  the  requirements  of  venue,  jurisdiction 
service   entry,  and  the  law  of  pleadings.    When  the  case  is 
before  the  court,  our  system  contemplates  the  doing  of  ius- 
tice  by  applying  general  laws  to  the  facts  of  the  particular 
case.    In  many  cases  the  attorney  must  be  ready  to  assist 
the  court  m  determining  the  law  applicable,  and  in  everv 
case  he  must  have  ascertained  the  facts  by  investigation 
must  have  selected  the  material  facts  admissible  according  to 
the  law  of  evidence,  must  have  the  witnesses  and  documents 
at  hand,  and  must  present  the  case  in  accordance  with  the 
rules  governing  trials.    When  judgment  is  rendered,  he  must 
transform  that  into  an  execution,  and  finally  undertake  to 
satisfy  such  execution  by  levy  on  the  defendant's  property 
At  every  stage  the  attorney  supplies  the  motive  power;  with- 

726 


LAW  AS  A  VOCATION 


727 


but  him  the  judicial  machinery  would  never  move.  It  is 
estimated  that,  on  an  average,  all  property  passes  through  the 
hands  of  lawyers  as  often  as  once  in  every  twenty-five  years. 
The  lawyer  is  as  necessary  as  the  engineer  or  the  doctor ; 
each  is  a  specialist  who  applies  the  laws  he  knows  for  the 
benefit  of  the  civilized  community.  Without  uprooting  our 
entire  administration  of  law  it  would  be  as  impossible  to 
abolish  the  lawyer  as  it  would  be  the  judge.^ 


§  646.    The  Work  of  the  Family  Lawyer 

Apart  from  the  function  of  the  advocate,  the  lawyer's  work 
may  be  heaviest  in  connection  with  the  disposition  and  care 
of  property.  Families  that  have  property  have  to  have  family 
lawyers,  and  this  work,  while  not  exciting,  is  interesting  and 
brings  the  counsellor  into  close  touch  with  human  lives,  human 
motives,  and  human  experiences.  The  work  of  settling  estates 
and  the  care  or  guardianship  of  minors  and  looking  after  the 
interests  of  single  women,  demands  from  the  counsellor  much 
care  and  much  sympathy  and  patience  for  human  frailties 
and  foolishness.  This  sort  of  work  will  bring  the  lawyer  into 
touch  with  many  lives.  Many  strange  stories  will  come  to 
his  ears,  which  he  cai\  never  repeat  but  which  make  him  feel 
that  he  can  do  good  in  the  world,  and  that  with  his  brethren, 
of  the  clerical  and  medical  professions,  he  can  help  to  make 
lighter  the  loads  of  weary  human  beings.  As  he  grows  older 
and  after  he  has  been  in  the  community  longer,  he  will  be 
appointed  executor  of  estates,  guardian  of  minors,  trustee  of 
funds,  and  to  other  responsible  work  that  comes  to  those  in 
whom  the  community  can  trust.  Much  of  this  is  not  very 
remunerative  work  or  very  thrilling,  but  it  has  its  charm  for 
one  who  loves  his  fellow  man  and  who  cares  for  the  lives 
of  those  about  him. 


» "Justice  and  the  Poor,"  by  Reginald  Heber  Smith. 


73$ 


LAW  AND  LAWYERS 


LAW  AS  A  VOCATION 


729 


§  647.    Business  and  Public  Life 

A  special  branch  of  a  lawyer's  work  is  where  he  acts  as 
adviser  for  business  enterprises.     The  lawyer  should  know 
the  law  and  also  the  customs  and  rules  that  govern  modem 
business.     He  will  be  required  to  organize  partnerships,  to 
incorporate  companies,  and  to  manage  the  legal  affairs  of 
businesses,  so  as  to  avoid  conflict  with  the  mixed-up  laws  of 
the  many  jurisdictions  in  which  a  modern  enterprise  operates 
If  in  addition  to  his  legal  lore  he  has  business  ability  and 
knowledge,  he  wiU  become  financially  interested  in  the  business 
of  his  clients  and  may  be  a  director  or  officer  of  corporations 
and  wiU  have  to  handle  the  multitude  of  industrial,  financial' 
and  commercial  problems  that  beset  a  live,  modern  business! 
He  will  Hve  a  Hfe  dose  in  touch  with  his  feUows,  full  of 
interest  and  action,  and  demanding  the  highest  qualities  of 
intellect  and  conscience  that  he  possesses. 

There  is  another  aspect  in  which  legal  training  and  ex- 
perience in  this  country  have  appealed  to  a  multitude  of  the 
most  ambitious  men  in  America.  This  is  the  opening  afforded 
to  political  life.  Most  of  our  leading  men  and  statesmen  have 
been  lawyers.  There  is  a  natural  reason  why  those  who  study 
law  should  gravitate  into  making  the  4aw  and  administering 
the  law  of  the  country.  For  those  intending  to  follow  public 
Hfe  the  course  should  be  broad,  including  international  law 
and  economic  theory,  the  history  of  our  own  and  foreign 
countries,  and  the  practical  working  of  politics. 

§  648.    The  Effect  of  Legal  Training 

Apart  from  other  considerations,  a  legal  training  has  been 
considered  an  excellent  preparation  for  a  life  of  any  kind  and 
in  our  country  it  is  frequently  the  preparation  for  successful 
and  prominent  business  life.  The  study  of  law  comes  generallv 
under  three  heads: 


First,  there  is  the  history  of  the  law,  and  its  development, 
which  is  an  interesting  example  of  evolution  and  well  worth 
studying  for  its  cultural  and  informative  value. 

Second,  the  study  of  the  principles  of  law.  These  are 
the  best  part  of  the  course  of  legal  study,  relating  to  the 
study  of  ethics,  to  the  foundations  of  right  and  wrong  and 
basic  justice.  These  principles  in  their  practical  application 
concern  themselves  with  nearly  every  truth  of  economics  and 
sociology.  Our  government,  our  business,  our  social  and  per- 
sonal relations  are  all  related  to,  and  ordered  and  directed 
by,  the  law  of  the  land;  and  to  understand  all  of  them  ade- 
quately, every  student  should  have  a  knowledge  of  the  prin- 
ciples of  Anglo-Saxon  law.  As  a  study  it  has  always  been 
intensely  interesting  to  the  more  serious  order  of  intellect. 

The  third  portion  of  the  law  is  less  agreeable  to  consider. 
It  consists  of  those  rules  of  procedure  which  have  crystallized 
into  hard  and  fast  statutes  and  decisions,  sanctified  by  long 
usage,  justified  by  precedent,  and  exceedingly  difficult  ever 
to  change  or  alter  to  fit  new  circumstances  and  novel  cases. 
There  is  no  reasoning  here  as  to  principle,  but  only  the  search 
for  and  application  of  precedents.  This  part  of  the  law 
becomes  still  less  interesting  as  it  descends  to  the  rules  of 
evidence  and  the  arbitrary  law  of  court  etiquette  and  formal 
procedure.  To  get  this  part  of  the  law  into  one's  head  re- 
quires an  immense  amoiuit  of  drudgery  with  an  almost  in- 
tolerable burden  of  facts  that  must  be  kept  in  mind.  It  is 
not  clear  how  this  is  to  be  avoided  in  the  study  of  law  as  it 
is  now  constituted.  The  evil  is  recognized  by  many  of  the 
best  practitioners  and  simplified  procedure  and  more  reason- 
able rules  for  presenting  causes  are  slowly  gaining  place. 

§  649.    The  Dignity  of  the  Profession 

Apart  from  all  the  considerations  that  have  been  named, 
the  profession  of  the  law  has  always  had  a  glamour  and  an 


730 


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LAW  AS  A  VOCATION 


731 


II 


attraction  for  the  ambitious  and  the  intellectually  gifted.  In 
our  country  the  lists  of  the  great  lawyers,  the  great  judges, 
and  the  great  statesmen,  all  of  whom  went  through  the  portals 
of  legal  education,  incline  those  who  would  follow  their  steps 
to  seek  the  same  paths.  After  the  American  Revolution,  our 
peculiar  form  of  government  gave  unusual  opportunities  to 
those  lawyers  who  had  initiative  and  constructive  imagina- 
tions, as  witness  the  unique  position  of  John  Marshall  and 
the  tremendous  influence  he  exerted  on  our  later  history.  The 
earlier  great  lawyers  and  judges,  such  as  Kent,  Webster, 
Story,  and  Shaw ;  the.  names  of  present  distinguished  and 
prominent  leaders  of  the  bar.  Root,  Hughes,  Choate,  and  Taft ; 
the  many  brilliant  orators  who  having  begun  as  advocates  were 
later  leaders  in  the  industrial  and  business  worid,  such  men 
as  Gary,  Lovett.  Depew,  and  McAdoo,  all  give  example  and 
impart  inspiration  to  those  who  aspire  to  the  high  places  and 
naturally  follow  their  footsteps  into  the  ancient  and  honorable 
profession  of  the  law. 

Not  on  the  same  plane  as  these,  but  with  much  influence 
on  the  young  men  that  know  them,  are  those  leaders  of  the 
bar  in  every  community  and  city  whose  study  of  the  law 
has  enabled  them  to  rank  with  the  best  minds  and  most  force- 
ful characters  in  their  vicinage.  They  have  won  well-merited 
distinction  from  their  fellows  who  know  them  well,  and  their 
families  occupy  socially  the  first  place  in  their  home  towns. 
To  grow  to  distinction  in  a  community,  to  win  wealth  enough 
for  comfort,  to  hold  an  honored  position  and  possibly  dis- 
tinguished office,  is  not  a  small  attainment. 

From  all  this  it  is  not  hard  to  see  why  young  men  have 
in  undue  numbers  thought  to  make  themselves  lawyers,  sought 
to  gain  the  professional  dignity  and  advantages  that  go  with 
the  profession  in  every  part  of  the  country  where  learning 
and  intellect  count  for  anything.  This  may  have  had  the 
effect  of  drawing  too  many  of  our  young  men  into  the  study 


of  the  law.     It  has,  however,  resulted  in  giving  our  country 
some  of  the  finest  exponents  of  legal  lore  to  be  found  in  the 

world. 

There  are,  it  is  true,  parts  of  our  country  where  admission 
to  the  bar  is  so  easily  obtained  that  the  dignity  of  the  profes- 
sion has  suffered.  In  a  state  where  a  man  of  ordinary  ability 
and  little  education  can  read  law  in  an  office  for  six  months 
and  then  be  admitted  to  the  bar,  he  does  not  deserve  any 
honor  or  gain  any  dignity  by  the  process.  In  such  states  there 
is  about  as  much  dignity  in  being  a  lawyer  as  usually  attaches 
to  the  office  of  notary  public.  Nevertheless,  even  in  these  states 
where  the  fact  of  being  admitted  to  the  bar  does  not  count  for 
much,  there  have  been  men  who  by  their  attainments  in  practice 
and  in  jurisprudence  have  won  all  the  dignity  and  honor  that  go 
with  this  profession  in  any  other  part  of  the  country. 

§  650.     Law  as  a  Practical  Vocation 

The  science  of  law  as  distinguished  from  its  practice  is 
all  to  be  found  in  books.  A  person  may  study  this  science 
thoroughly  from  these  books  and  at  the  end  be  competent  only 
to  teach  law  in  a  law  school.  He  may  have  no  idea  of  the 
art  of  the  practice  of  law,  of  winning  cases,  and  of  making 
a  living  from  the  law  in  the  business  world.  He  may  have 
no  comprehension  of  the  way  in  which  a  modern  practitioner 
goes  to  work  to  make  his  place  in  his  profession.  He  might 
know  law  as  a  science  but  not  as  a  practical  means  of  liveli- 
hood. 

Success  in  the  practice  of  law  demands  a  certain  intellectual 
ability  to  begin  with,  but  this  is  only  the  beginning.  The 
successful  lawyer  is  a  man  who  has  this  and  also  imderstands 
the  valued  art  of  influencing  his  fellow  men.  He  must  know 
human  nature.  Judges  and  juries  are  not  won  over  by  the 
cold-blooded  application  of  logic  and  legal  research.  Neither 
are  clients  gained  by  reason  of  intellectual  ability.    They  are 


732 


LAW  AND  LAWYERS 


LAW  AS  A  VOCATION 


733 


I 


human  and  are  reached  through  their  emotions,  their  sym- 
pathies and  prejudices,  as  are  all  other  men.  So  the  lawyer, 
in  spite  of  all  his  intellect  and  legal  lore,  will  not  be  successful 
unless  he  is  a  man  of  affairs,  able  to  take  his  part  in  all  the 
varied  modem  life  of  his  fellows.  A  successful  lawyer  must 
be  a  good  mixer,  must  be  able  to  mingle  easily  with  others  in 
social,  political,  and  business  relations,  and  must  understand 
human  nature  better  than  he  understands  his  law  books. 

So  many  young  men  fail  in  the  law  because  they  start  in 
with  the  idea  that  it  is  solely  an  intellectual  profession,  and 
that  the  ability  to  memorize  and  reason  clearly  will  give  them 
success. 

§651.    Succeeding  in  the  Law 

If  a  young  man  aspires  to  be  a  lawyer,  he  should  first 
satisfy  himself  as  to  his  intellectual  capacity.  If  he  graduates 
from  high  school  he  should  be  with  the  first  in  his  class.  If 
he  is  only  fair  in  his  studies,  there  are  many  things  he 
can  do  successfully,  but  it  would  not  be  wise  for  him  to  study 
law.  Assuming  now  that  he  has  this  necessary  intellectual 
capacity,  he  may  be  sure  that  if  he  gives  sufficient  time  and 
attention  to  his  studies  he  will  be  admitted  to  the  bar  and  have 
the  privilege  of  tr>ang  to  secure  a  paying  practice.  But  this 
is  only  the  beginning. 

It  has  been  often  said  that  a  man  who  has  been  a  shirk 
in  college  may  prove  a  leader  when  he  passes  into  the  law 
school.  In  fact,  this  seldom  happens.  Statistics  show  that 
the  better  scholars  in  law  are  those  who  have  been  among 
the  better  scholars  during  the  period  of  their  previous 
training.* 

The  next  step  to  success  is  to  secure  practice.  If  anyone 
will  undertake  a  little  research  work  in  this  direction,  he  will 


*"Tli«  Young  Man  and  The  law,"  by  Simeon  E.  Baldwin,  page  140. 


find  that  the  only  profitable  practice  comes  from  people  who 
are  weU-to-do,  or  perhaps  we  should  say  from  wealthy  people. 
The  average  man  employs  a  lawyer  but  seldom.    A  man  who 
keeps  his  family  well  but  spends  all  he  makes  can  go  through 
his  whole  life  and  contribute  very  little  money  to  the  up-keep 
of  the  legal  profession.     Every  man  has  to  pay  employees, 
a  doctor,  and  a  dentist;  he  has  to  pay  these  a  generous  slice 
of  his  income,  but  if  one  investigates  he  will  be  astomshed 
to  find  out  how  little  the  average  man  pays  for  law}^er's 
services.    Find  out  how  much  the  people  you  know  weU  and 
associate  with  pay  to  a  lawyer  each  year,  or  how  much  they 
have  paid  in  their  past  lives ;  then  you  can  get  an  idea  of  how 
many  clients  of  that  class  you  would  have  to  have  to  make  a 
fair  living.    If  you  find  that  you  are  not  in  a  position  through 
family,  social,  or  other  connection  to  secure  the  patronage  of 
men  of  wealth,  you  are  not  likely  to  make  much  money  at 
the  practice  of  law.    This  is  a  hard  fact  that  too  many  young 
men  entirely  overlook.     The  real  problem  is  not  how  to  be 
admitted  to  the  bar,  but  how  to  secure  honorably  enough 
profitable  legal  work  to  enable  one  to  live  as  a  professional 
man  should  live  at  this  time  and  in  this  country. 

§652.     Deceptive  Statistics 

The  advertisements  of  some  cheap  law  schools,  which  have 
made  much  money  in  this  way,  give  interesting  reports  of  the 
alleged  net  earnings  of  graduates  of  the  Hansard  Law  School. 
These  reports  apparently  show  that  the  average  legal  earnings 
in  the  fifth  year  of  practice  were  over  $2,500,  and  in  the  tenth 
year  over  $5,800.  These  returns  when  applied  to  the  ordinary 
young  man  are  entirely  misleading  and  deceptive.  In  the  first 
place,  of  all  those  written  to  for  the  information  from  which 
these  reports  were  compiled,  only  about  one-half  replied,  which 
means  that  those  who  had  failed  and  those  who  were  making 
small  returns  and  those  who  had  dropped  out  of  the  law 


lil 


734 


LAW  AND  LAWYERS 


altogether  did  not  answer,  so  that  the  report  was  averaged 
really  only  from  the  earnings  of  the  most  successful  graduates 
of  the  Harvard  Law  School.  In  the  second  place,  no  one  is 
admitted  to  the  Harvard  Law  School  unless  he  is  a  graduate 
of  a  good  college,  which  means  that  practically  all  the  students 
come  from  well-to-do  families,  have  good  connections  and 
wealthy  friends  and  a  legal  and  intellectual  training  far  su- 
perior to  that  of  the  average  lawyer.  The  report  shows  that 
taking  the  picked  men  of  the  school  with  the  best  preparation 
that  money  can  buy,  and  with  all  possible  advantages  of 
family,  associations,  and  connections,  they  have  succeeded 
fairly  well.  It  proves  nothing  more.  If  accurate  figures  could 
be  obtained  from  the  graduates  of  ordinary  law  schools  and 
from  that  vast  host  who  come  into  the  law  from  correspond- 
ence schools  and  country  law  offices,  the  results  would  be  most 
discouraging. 


§653.    Practical  Directions 

What  a  young  man  who  thinks  of  studying  law  should  do 
is  to  decide  where  he  means  to  practice,  what  connections  he 
has  or  can  make  that  can  give  him  lucrative  legal  work,  and 
whether  he  has  those  social  gifts  that  are  so  necessary  to 
enable  him  to  succeed  in  his  profession.  A  young  man  of  the 
author's  acquaintance  looking  for  a  location  went  to  the  county 
seats  of  a  number  of  the  counties  of  the  states  in  which  he 
proposed  to  settle,  visited  the  county  clerks'  offices,  found  out 
how  many  cases  were  on  the  dockets  of  all  the  courts,  how 
many  probate  cases  there  were,  how  many  transfers  of  prop- 
erty there  had  been  in  the  past  year,  and  then  figured  liberally 
what  would  be  the  lawyers'  fees  on  all  of  this  business.  Then 
he  found  out  how  many  lawyers  were  already  in  the  particular 
county  and  a  simple  sum  in  division  discouraged  him  from 
commencing  to  practice  in  most  of  the  places  he  visited.    It 


LAW  AS  A  VOCATION 


735 


should  be  said  though,  that  a  good  lawyer  with  real  ability 
to  get  clients  could  have  succeeded  in  any  of  these  places. 

This  method  might  not  be  always  practicable  at  the  present 
time,  but  no  man  would  start  a  factory  or  a  mercantile  estab- 
lishment or  any  other  kind  of  business  enterprise  without 
taking  some  steps  to  find  out  what  returns  were  likely  or 
possible.  In  the  law,  thousands  of  young  men  every  year 
invest  a  considerable  capital  in  money  and  from  two  to  fifteen 
of  the  best  years  of  their  lives  only  to  find  too  late  that  they 
have  mistaken  their  calling,  and  will  have  to  go  through 
life  on  the  ragged  edge  of  penury  or  else  admit  failure  and 
try  to  get  into  some  new  business  in  later  life. 

Bear  in  mind  that  the  real  problem  is,  after  admission  to 
the  bar,  to  get  a  profitable  clientele.* 


» Since  this  chapter  was  written,  a  work  on  the  same  general  subject,  entitled 
"The  Young  Man  and  The  Law,"  by  Simeon  E.  Baldwin,  has  been  published.  It  gives 
the  point  of  view  of  a  man  who  by  birth,  education,  and  association  had  the  most 
favorable  introduction,  the  best  training,  and  the  most  happy  experience  in  the  legal 
profession.  If  the  foregoing  chapter  seems  less  enthusiastic  than  the  book,  it  is 
because  it  considers  more  carefully  the  situation  of  the  ambitious  young  man  who 
must  work  his  own  way,  who  is  not  a  graduate  of  Harvard  or  Yale,  and  who 
must  force  his  upward  way  from  the  outside  with  no  foundation  of  family  and  social 
connection  upon  which  to  build. 


PART  XXI 
FORMS 


r 


CHAPTER  XCVIII 

DRAFTING  A  CONTRACT 

Getting  the  Facts.  To  draw  up  a  formal  written  contract, 
it  is  first  necessary  to  get  the  facts  of  the' particular  transaction 
well  in  hand.    These  facts  would  include: 

1.  Preliminary:  date,  place,  and  parties 

2.  The  date  and  the  place  where  the  contract  is  made 

3.  The  consideration 

4.  The  obligation 

5.  The  description  of  the  subject  matter 

6.  The  period  or  time  limit 

7.  Any  damages  or  penalty  for  non-performance 

8.  Any  special  provisions 

Making  an  Outline.     In  order  to  set  everything  forth  in 
due  order,  there  is  advantage  in  making  an  outline  before 

beginning. 

The  outline  for  a  formal  contract  may  be  something  like 

this: 

1.  Preliminary:  date,  place,  and  parties 

2.  Any  explanatory  clauses 

3.  Consideration 

4.  Obligation  and  subject  matter 

5.  Time  of  performance 

6.  Special  provisions 

7.  Testimonium  clause 

8.  Attestation  or  acknowledgment 

739 


74© 


FORMS 


DRAFTING   A  CONTRACT 


741 


A  more  detailed  outline  would  be  as  follows: 


I. 


3 

4* 


6. 


7- 
8. 

9. 


Introductory 

(a)  Date 

(b)  Place 

(c)  Parties  (first  and  second,  third,  joint,  etc.; 

residence  and  any  other  identifying  de- 
tails) 

Preamble  or  statement  of  intention 

Considerations  (frequently  outlined) 

Obligations  and  subject  matter 

(a)  What  party  of  first  part  is  to  do  or  not  to  do 

(b)  What  party  of  second  part  is  to  do  or  no\ 

to  do 

(c)  Any  joint  undertakings 
Time  of  performance 

(a)  Beginning  date 

(b)  Ending  date 
Special  provisions 

(a)  General 

(b)  Special  penalties  for  failure  to  do  or  not 

to  do 
Testimonium  clause 
Signatures 
Attestation  or  acknowledgment 


Date  for  a  Contract     The  facts  in  a  certain  proposed 
contract  are  as  follows: 

A  contract  is  to  be  prepared  as  of  December  i,  1919,  be- 
tween the  Alcott  Furniture  Corporation  of  Buffalo  and  Wil- 
•  Ham  F.  Dean  of  Rochester,  N.  Y.,  by  which  he  is  to  act  as 
branch-house  manager  in  the  city  of  Baltimore  for  a  period 
of  three  years  from  January  i,  1920,  at  a  salary  of  $6,000 
per  annum,  payable  monthly,  having  entire  charge  of  their 


business  in  that  city  and  in  the  state  of  Maryland,  and  in  the 
District  of  Columbia. 

In  addition  to  his  salary  he  is  to  have  a  i  per  cent  com- 
mission on  all  business  handled  through  the  branch  in  excess 
of  $300,000  per  annum,  and  if  the  expense  of  doing  business 
at  the  branch  is  less  than  10  per  cent  of  the  gross  sales,  the 
manager  is  to  receive  one-third  of  such  savings.^  Manager 
is  to  give  bond  in  sum  of  $25,000. 

These  data  may  be  roughly  divided  according  to  the  out- 
line given  as  follows: 

1.  (a)  February  2d,  1920;  (b)  Buffalo,  N.  Y. ;  (c) 

Alcott  Furniture  Corporation  of  Buffalo,  N.  Y., 
and  William  F.  Dean  of  Rochester,  N.  Y. 

2.  William  F.  Dean  to  be  employed  by  the  corporation 

to  manage  a  branch  house  at  Baltimore,  Md. 

3.  Salary  of  $6,000  per  annum,  monthly  instalments 

of  $500  each,  and  contingent  commission  and 
remuneration  as  given  under  6. 

4.  William  F.  Dean  to  manage  branch  house  at  Balti- 

more and  to  have  entire  charge  of  business  in 
Maryland  and  District  of  Columbia. 

From  February  2d,  1920,  to  end  ot  three  years. 

Extra  commission  of  i  per  cent  on  business  in  ex- 
cess of  $300,000;  also  one-third  of  any  reduction 
of  branch  expenses  below  10  per  cent  of  gross 
sales. 

7.  Testimonium  clause. 

8.  (a)  Corporate  signature;  (b)  the  manager's  signa- 
ture. 

9.  Attestation  by  two  witnesses.    No  acknowledgment. 


5- 
6, 


'  The   rates   given    are   taken   from   a   New  York   examination    question   given   to 
applicants  for  C.  P.  A.  license. 


Ill 


74a 


FORMS 


Form  I.    The  Contnct  as  Drafted  '^ 

(i)    Date,  Place,  and  Parties 

This  Agreement  made  and  entered  into  in  the  City  of  Buffalo, 
New  York,  on  the  2nd  day  of  February,  1920,  between  the  Alcott  Furniture 
Corporation,  a  corporation  under  the  business  corporations  law  of  the 
State  of  New  York,  having  its  factory  and  principal  place  of  business 
in  the  City  of  Buffalo,  New  York,  hereinafter  designated  as  the  "Cor- 
poration," and  William  F.  Dean  of  Rochester,  New  York,  hereinafter 
designated  as  the  "Manager." 


WITNESSETH   ThAT: 


(2)    Preamble 


Whereas,  the  said  Corporation  desires  to  employ  the  said  William 
F.  Dean  as  its  branch-house  Manager  in  the  City  of  Baltimore,  Maryland, 
on  the  terms  and  conditions  following: 

(3)    Consideration 

Now  Therefore,  in  consideration  of  the  salary  of  Six  Thousand 
Dollars  ($6,000)  per  annum  to  be  paid  to  the  said  Manager  by  the  said 
Corporation  in  monthly  instalments  of  Five  Hundred  Dollars  ($500)  each, 
at  the  end  of  each  calendar  month,  the  said  Manager  agrees  and  binds 
himself  as  follows: 

(4)    Obligation  or  Subject  Matter 

1.  The  said  Manager  agrees  and  undertakes  to  conduct  and  manage 
the  business  of  the  said  Corporation  in  the  City  of  Baltimore  for  the 
period  of  three  years  from  the  date  hereof,  and  diligently  and  faithfully 
to  look  after  the  business  of  said  Corporation  and  to  push  the  sale  of 
its  products  to  the  best  of  his  ability. 

2.  The  said  Manager  agrees  and  undertakes  forthwith  to  take 
charge  of  the  business  and  property  of  the  said  Corporation  in  the  City 
of  Baltimore,  and  with  the  approval  of  the  Corporation  .to  rent  suitable 
premises  at  a  cost  not  exceeding  Forty-five  Hundred  Dollars  ($4,500) 
per  annum,  to  employ  salesmen  and  assistants  as  may  be  needed,  to 
keep  books  of  account  according  to  the  forms  prescribed  by  the  Corpora- 
tion, and  to  make  out  all  such  reports  and  statements  of  the  business 
as  said  corporation  may  demand  during  the  period  of  his  employment. 

(5)     Time  of  Performance 

3.  The  period  of  this  agreement  is  to  be  for  three  years  from  the 
date  hereof. 

(6)    Special  Provisions 

4.  It  is  agreed  between  the  said  parties  that  the  said  Manager  shall 
receive  as  additional  compensation  at  the  end  of  each  year  a  commission 
of  One  Per  Cent  (1%)  on  all  net  business  handled  through  the  branch 
in  excess  of  Three  Hundred  Thousand  Dollars   ($300,000)   per  annum. 


»  The  numerals  in  parentheses  and  titles  following  them  are  no  part  of  the  contract, 
but  are  inserted  to  identify  the  parts  of  th«  contract  with  outline  given  above. 


DRAFTING  A  CONTRACT 


743 


Further,  if  the  entire  expense  of  doing  business  at  the  branch  shall  be 
less  than  Ten  Per  Cent  (10%)  of  the  gross  sales,  then  the  Manager  is 
to  receive  at  the  end  of  each  year  one-third  of  the  amount  of  such  saving 
in  the  expense  of  operation. 

5.  It  is  agreed  between  the  said  parties  that  the  said  Manager  shall 
give  bond  through  a  reliable  bonding  company  to  the  amount  of  Twenty- 
five  Thousand  Dollars  ($25,000),  conditioned  that  he  will  honestly  conduct 
the  business  of  the  said  Corporation,  and  at  the  end  of  his  period  of 
employment  will  surrender  to  its  duly  authorized  agent  all  property, 
books,  and  cash  belonging  to  said  Corporation. 

(//  is  probable  that  there  would  be  other  terms,  conditions,  and 
provisions,  which  would  be  made  part  of  the  agreement  and  would  follow 
here.) 

(7)     Testimonium  Clause 

6.  In  Witness  Whereof,  the  said  Corporation  by  its  President, 
thereunto  duly  authorized,  has  signed  this  instrument,  and  the  Secretary 
has  hereunto  affixed  the  corporate  seal  of  the  said  Corporation,  and  the 
said  Manager  has  hereunto  affixed  his  signature  and  seal,  in  the  City  of 
Buffalo,  New  York,  on  the  2nd  day  of  February,  1920. 

(8)     Corporate  Signature;  Manage/s  Signature 

Alcott  Furniture  Corporation 
By 


{ 


CX)RP0RATE 
SEAL 


} 


President 


Attest: 


Secretary 


Manager  [l.s.1 


(9)    Attestation 
Signed  and  sealed  in  our  presence : 


EVIDENCING  AN  INSTRUMENt 


745 


I 


CHAPTER  XCIX 

.  EVIDENCING  AN  INSTRUMENT 

Methods  of  Evidencing  an  Instrument,  Any  contract  re- 
duced to  writing  is  no  better  than  an  oral  contract,  unless  in 
some  way  it  can  be  identified  as  evidence  of  the  agreement. 
In  order  to  do  this  it  must  be  evidenced  by  tiie  signature  of 
one  or  both  parties,  and  unless  the  signature  is  admitted,  it 
must  be  proved:  (i)  by  witnesses  who  knew  the  signature 
or  saw  it  signed,  (2)  by  acknowledgment  before  a  notary 
public,  or  by  affidavit  of  subscribing  witness  or  the  party  who 
signed. 

Some  contracts  under  the  Statute  of  Frauds  need  be  signed 
by  but  one  party,  the  party  to  be  charged.  The  various 
methods  of  identifying  instruments  may  be  summed  up  as 
follows: 


I. 
2. 

3- 
4. 


Signature  by  party  to  be  charged. 

Signatures  by  both  parties. 

Attestation  of  signing  by  witnesses. 

Acknowledgment  before  a  notary  by  party  or  sub- 
scribing  witness. 
5.     Affidavit  before  notary  by  party  or  subscribing  wit- 
ness. 

Signatures.     When  a  contract  of  any  kind  has  been  re- 
duced to  writing  it  should  be  signed  by  both  parties: 

1.  To  identify  the  particular  instalment  to  which  the 

parties  agreed. 

2.  To  prove  the  instrument  in  case  of  suit  against  the 

party  to  be  charged. 

744 


Both  parties  should  sign:  (i)  to  identify  the  agreement, 
and  (2)  in  case  it  should  be  necessary  to  enforce  it  agamst 

either. 

As  has  been  set  forth  in  Chapter  VII,  some  contracts  must 

be  in  writing  and  signed  by  the  party  to  be  charged.  Signa- 
tures may  be  by  pen  or  pencil,  and  in  some  cases  by  rubber 
stamp  as  in  the  case  where  checks  are  indorsed  for  deposit 

in  a  bank.  u    t      a 

The  usual  forms  for  personal  signatures  are  to  be  found 

in  connection  with  Forms  14,  15. 

When  an  agent  signs  he  needs  to  be  careful  that  he  bmds 
his  principal  and  not  himself.  This  subject  has  been  already 
treated.    (See  §  142.) 

Form  a.    Agent's  Signature 

Allan  Garney, 
By  James  King, 

Agent 


Form  3.    Corporate  Signatures  to  Letters 


(I) 


(2) 


Joseph  H.  McPherson, 

President 


Joseph  H.  McPherson, 
President  Holland  Typewriter  Co. 


Form  4.    Corporate  Signature 
(I) 


Ramsay  Water  Company, 

By 

President 


(2} 


Ramsay  Water  Company, 
By  Howard  Ramsay, 

President 


746 


FORMS 


f 


1 


The  signature  of  a  corporate  official  followed  by  his  official 
designation  is  usually  referred  to  as  an  "official"  signature. 
The  name  of  a  corporation  duly  affixed  and  evidenced  by  the 
signature  of  the  affixing  officer  or  officers  is  known  as  a  "cor- 
porate" signature. 

Signature  ( i )  of  Form  3  is  the  simplest  form  of  official 
signature.  It  should  be  used  only  when  the  letter  or  other 
instnmient  to  which  it  is  appended,  shows  plainly  and  immis- 
takably,  by  heading  or  subject  matter,  of  what  company  the 
person  signing  is  an  official.  If  this  is  not  the  case,  the  official 
signature  should  be  written  in  full  as  in  signature  (2)  of 
Form  3.  Corporate  signature  ( i )  of  Form  4  is  in  the  simplest 
form.  This  form  shows  a  partial  corporate  signature — usually 
affixed  by  means  of  a  rubber  stamp — awaiting  completion  by 
the  insertion  of  the  president's  signature  as  shown  in  signature 
(2)  of  Form  4. 

When  the  corporate  signature  is  affixed  to  important  in- 
struments, usually,  though  not  necessarily,  two  or  more  official 
signatures  are  employed  as  in  Form  5.  The  seal  is  also  usually 
affixed  even  when  not  legally  necessary. 

The  corporate  signature  may  be  legally  affixed  by  any  cor- 
porate official  or  agent  authorized  thereto  by  the  directors  or 
by-laws.  In  all  current  business,  however,  where  but  one 
signing  officer  is  desired,  the  president  is  usually  designated, 
unless  the  transaction  pertains  specially  to  the  department  of 
some  other  official. 

When  corporate  acknowledgments  are  taken,  the  notary 
should  not  be  an  officer  or  stockholder  of  the  corporation. 
The  form  of  acknowledgment  is  usually  regulated  by  statute 
and  it  therefore  varies  in  almost  every  state  of  the 
Union. 

Signatures  are  usually  introduced  by  a  testimonium  clause. 
"Testimonium"  means  "in  evidence  of."  The  simplest  forms 
usually  state  as  much,  as: 


EVIDENCING  AN   INSTRUMENT 


747 


"Witness  our  signatures. 
"In  Witness  Whereof,  we  sign  our  names." 
"In  Testimony  Whereof,  we  hereunto  affix  our  signa- 
tures." 

These  could  be  followed  by  date  and  place,  as: 

"Witness  our  signatures,  hereunto  affixed  this  24th  day 
of  February,  1920,  in  the  City  of  Rochester,  New 
York: 

"Witness  my  hand  and  seal  this  24th  day  of  February, 

1920. 

Larry  Arnold  [l.s.]" 

In  the  case  of  corporate  signatures  the  testimonium  clause 
is  more  formal,  as  in  Form  5  below. 

Form  5.    Testimonium  Clause— Two  Corporate  Signatures 

In  Witness  Whereof,  the  said  parties  of  the  first  and  second 
parts  have  caused  their  respective  corporate  signatures  and 
seals  to  be  hereunto  affixed  by  their  duly  authorized  officers, 
in  the  City,  County,  and  State  of  New  York,  on  the  day  and 
year  first  above  written. 


{ 


CORPORATE 
SEAL 


} 


Arlington  Brass  Works, 
By  Henry  Brierly, 

President 


Attest  Seal: 

John  H.  Savage, 

Secretary 


{ 


CORPORATE 
SEAL 


} 


Newark  Castings  Company, 
By  Horace  D.  Powers, 

President 


Attest  Seal: 

Henry  M.  Sunthein, 

Secretary 


III 


A  more  formal  testimonium  clause  for  a  corporate  and 
individual  signature  is  as  follows: 


748 


FORMS 


EVIDENCING  AN  INSTRUMENT 


749 


< 


Form  6.    Testimonium  Clause — Corporate  and  Individual  Sig- 
natures 

In  Witness  Whereof,  the  Little  Falls  Carpet  Company,  said 
I»arty  of  the  first  part,  has  caused  its  corporate  seal  to  be 
affixed  to  this  indenture,  and  its  corporate  signature  to  be 
subscribed  hereunto  by  its  President  and  Secretary  duly 
authorized  thereunto,  and  the  said  Harrison  H.  Spellman, 
party  of  the  second  part,  has  affixed  his  signature  and  seal 
hereunto,  all  being  done  in  the  City  of  Trenton,  State  of 
New  Jersey,  on  the  day  and  year  first  above  written. 


{ 


CORPORATE 
SEAL 


} 


Little  Falls  Carpet  Company, 
By  Willis  H.  Shelley, 

President 
James  H.  McClelland, 

Secretary 

Harrison  H.  Spellman  [l.s.1 


Seals.  The  use  of  seals  is  very  ancient.  The  reason  was 
that  the  property-holding  classes  did  not  know  how  to  write 
their  names.    Earl  Douglas  says: 

Thanks  to  St.  Mary,  son  of  mine 
Save  Gawain,  ne'er  can  pen  a  line. 

Hence  in  that  day  the  few  deeds,  leases,  and  other  instru- 
ments that  came  their  way  were  evidenced  by  the  seal  of  the 
high  party  contracting,  and  as  evidence  it  ranked  higher  than 
the  written  signature. 

At  present,  deeds,  bonds,  mortgages,  and  a  few  similar 
mstnmients  that  have  come  down  from  antiquity  are  required 
to  have  a  seal  as  well  as  a  signature  to  make  them  effectual. 
In  former  days  the  seal  was  actually  impressed  on  hot  wax 
and  was  individual  to  the  user.  Now  it  has  become  an  empty 
form,  sometimes  a  mere  printed  symbol  [l.s.]  on  a  deed 
form,  sometimes  a  scroll  made  with  a  pen,  and  at  best  a  red 
or  other  colored  piece  of  paper  pasted  in  the  place  where  a 
seal  should  go. 


A  seal  is  still  necessary  on  deeds  and  other  instruments 
affecting  land  and  in  some  states  on  wills.  It  is  said  "to 
import  a  consideration"  and  in  most  states  the  use  of  a  seal 
bars  any  investigation  as  to  the  real  consideration. 

Attestation.  When  seals  were  used  exclusively  it  was 
customary  to  have  witnesses  to  the  sealing.  Now  the  use  of 
witnesses  adds  a  little  to  the  solemnity  of  the  execution  of 
an  instrument  and  in  the  event  of  either  party's  denying  his 
signature,  or  in  case  of  the  death  of  a  party  and  consequent 
dispute  as  to  his  signature,  the  ability  to  secure  a  witness  who 
had  seen  the  party  sign  and  who  had  signed  as  a  witness  at 
the  same  time  would  be  valuable  evidence. 

Under  some  circumstances,  a  subscribing  witness  can  later 
go  before  a  notary  or  other  competent  officer  and  prove  the 
execution  of  the  instrument  by  the  party  signing.  In  some 
states  the  signatures  to  all  deeds  must  be  witnessed. 

Usually  the  only  object  of  having  witnesses  attest  the 
signatures  to  a  contract  is  to  have  convenient  evidence  of  the 
execution  of  the  contract.  This  sometimes  prevents  a  con- 
test, and  sometimes  makes  the  parties  take  the  whole  matter 
more  seriously.  The  witnesses  should  be  persons  who  would 
be  likely  to  stay  in  the  vicinity  for  some  time  so  that  it  would 
be  possible  to  call  upon  them  if  they  were  needed  later  to  prove 
the  contract.    The  form  is  usually  simple. 

4 

Form  7.    Attestation  Clause 

(i)         Attest: 

Henry  James 


(3)         In  Witness  Whereof,  we  have  hereunto  subscribed  our  names 
at  St.  Louis,  Missouri,  on  this  ist  day  of  February,  a.d.,  1920. 

R  L.  Sanders 
Charles  D.  Bates 
Lee  D.  Norris 
Witnesses : 

Harold  Smith 
James  B.  Donnelly 


I|i 


7SO 
(3) 


FORMS 

Signed,  sealed,  and  delivered  in  our  presence  this  6th  day  of 
January,  1920. 

Frank  Donnelly 
Louis  C.  King 


EVIDENCING  AN  INSTRUMENT 


751 


In  some  states  witnesses  are  required  to  deeds,  and  wills 
are  always  required  to  have  the  signatures  of  witnesses.  The 
attestation  clause  in  a  will  must  be  more  formal. 

Fomi  8.    Attestation  Clause  in  a  Will 

Signed,  sealed,  published,  and  declared  by  the  testator  as  and  for 
his  last  will  and  testament,  in  our  presence,  who,  at  his  request,  and  in 
his  presence,  and  in  the  presence  of  each  other,  have  each  of  us  hereunto 
subscribed  our  names  as  witnesses. 

Charles  A.  Peabody, 
13  Park  Avenue,  New  York. 

C.  C.  Tegethoff, 
291  East  Seventeenth  Street, 
Flatbush,  L.  I. 


Acknowledgments.  It  is  required  that  the  active  party  in 
a  deed  or  mortgage  or  other  instrument  of  equal  solemnity 
which  is  to  be  recorded,  shall,  after  signing  the  instrument, 
go  before  a  notary  public  or  other  official  having  like  powers 
to  whom  he  is  personally  known,  and  shall  acknowledge  his 
signature  and  that  he  signed  the  instrument  for  the  uses  and 
purposes  therein  set  forth.  An  acknowledgment  does  not 
affect  the  validity  of  the  instrument,  but  makes  it  eligible  for 
record.  .An  unacknowledged  deed  is  valid  as  between  the 
parties.  A  certificate  of  acknowledgment  merely  gives  evi- 
denciary  value  to  the  instrument  and  qualifies  it  to  be  recorded. 

An  acknowledgment  would  seem  to  be  a  simple  matter  but 
each  state  has  its  own  form  and  rules  for  taking,  and  an 
acknowledgment  good  for  record  in  one  is  not  necessarily  good 
in  another  state  or  a  foreign  country.  Therefore,  when  a  deed, 
mortgage,  or  other  instrument  to  be  recorded  in  another  state 
is  to  be  acknowledged,  care  must  be  taken  to  comply  with 


the  law  of  the  particular  state  or  country  in  which  it  is  to  be 

recorded. 

The  attempt  has  been  made  to  secure  a  Uniform  Foreign 
Acknowledgment  Act,  but  to  date,  the  only  states  that  have 
adopted  it  are:  Louisiana,  Maryland,  Nevada,  New  Hamp- 
shire, and  Wisconsin. 

Form  9.    Acknowledgment  of  Individual  Person 


State  of  . 
County  of 


} 


WW  •  • 


On  this day  of ,  I9  •  •  •  before  me  personally 

appeared        ,  to  me  known,  and  known  to  me,  to  be  the 

person  described  in  and  who  executed  the   foregoing  instrument,   and 
acknowledged  that  he  executed  the  same  as  his  free  act  and  deed. 
(Seal  if  officer  has  seal)  (Signature  and  title  of  the  officer) 


The  Real  Property  Law  of  New  York  (Section  304), 
provides  that  the  officer  shall  not  take  proof  by  a  subscribing 
witness  unless  he  **is  personally  acquainted  with  such  witness, 
or  has  satisfactory  evidence  that  he  is  the  same  person  who 
was  a  subscribing  witness  to  such  instrument." 

The  certificate  of  acknowledgment  should  always  contain, 
besides  the  signatures  of  the  officer,  the  name  of  his  office, 
extent  of  his  jurisdiction,  and  date  of  expiration  of  his  com- 
mission. 

■m 

Form  ID.    Acknowledgment  of  Attorney 

On  this  day  of  19. . . .,  before  me  personally 

appeared to   me  known   to   be   the   person   who 

executed  the  foregoing  instrument  in  behalf  of •  •.  a*id 

acknowledged  that  he  executed  the  same,  as  the  free  act  and  deed  of 
said 


When  an  acknowledgment  is  for  an  instrument  which  is 
to  be  recorded  in  another  county  or  in  another  state,  it  is 


(^ 


i 


752 


FORMS 


necessary  to  have  the  clerk  of  some  court  of  record  in  the 
county  where  the  notary  or  other  official  resides,  certify  that 
such  dficer  was  at  the  time  of  the  acknowledgment  authorized 
to  take  the  same  and  that  the  signature  of  the  officer  to  the 
acknowledgment  is  genuine. 

Form  XX.    Clerk's  Authentication 

1,  ,  clerk  of  the  court  in  and  for  said 

county,  which  court  is  a  court  of  record,  having  a  seal,  do  hereby 
certify  that ,  by  and  before  whom  the  foregoing  acknowl- 
edgment was  taken,  was,  at  the  time  of  taking  the  same,  a  notary 
public  (or  other  officer)  residing  in  said  county,  and  was  duly  authorized 
by  tibc  laws  of  said  state  (territory,  or  district)  to  take  and  certify 
acknowledgments  or  proofs  of  deeds  of  land  in  said  state  (territory 
or  district),  and  further  that  I  am  well  acquainted  with  the  handwriting 

of  said  and  that  I  verily  believe  that  the  signature 

to  said  certificate  of  acknowledgment  is  genuine. 

Ih  Testimony  Whereof,  I  have  hereunto  set  my  hand  and  affixed 

the  seal  of  the  said  court   (or  state)  this   day  of 

19 


Practical  Suggestions.  Since  each  state  has  its  own  forms 
of  acknowledgment,  it  is  safest,  in  executing  deeds  and  other 
important  instruments  to  be  recorded,  (i)  to  get  a  printed 
form  of  the  instnunent  from  the  state  in  which  the  instrument 
is  to  be  recorded,  or  (2)  to  get  a  book  of  forms  giving  the 
forms  for  each  state  and  an  abstract  as  to  the  law  regulating 
the  details  of  execution,  acknowledgment,  etc.,  or  (3)  to 
secure  the  services  of  a  commissioner  appointed  by  the  gov- 
ernor of  the  state  in  which  the  instrument  is  to  be  recorded. 
If  the  matter  of  expense  is  not  material,  a  competent  lawyer 
could  be  employed  to  take  over  the  whole  responsibility. 

Affidavits.  An  affidavit  is  a  sworn  statement  or  oath  in 
writing  made  before  some  person  authorized  to  administer 
an  oath.  An  affidavit  differs  from  an  oath  taken  in  court, 
in  that  it  is  always  in  writing.  The  affidavit  must  be  signed 
by  the  maker  as  well  as  evidenced  by  the  signature  of  the 


EVIDENCING  AN  INSTRUMENT 


753 


proper  officer  who  administered  the  oath.  The  two  essential 
parts  of  an  affidavit  are  the  venue  and  the  jurat,  and  if  either 
of  these  is  missing  the  affidavit  will  not  be  good. 


Form  la.    Affidavit 

State  of  New  York 
County  of  New  York  , 

n„  fliU  Toth  dav  of  February,  1920,  personally  appeared  before  me. 
.  N^ary  Publk  ifLd  for  the  Coun^'of  New  York,  Walter  L.  Hood 
TrlsuJer  of   the  Hood   Scale  Company,   who,  bemg   duly  sworn,   did 
depose  and  say 


}"••• 


>••••• 


•••••• 


>•••••••••• 


Walter  L.  Hood 


Sworn  to  before  me  the 
day  of  


f    NOTARIAL  \ 
\        SEAL         J 

Term  expires  February  15,  1922- 


James  H.  Steele, 

Notary  Public  for 

New  York  County,  No.  994 


The  formal  ending  "Sworn  to  before  me  the day 

q£        /'  signed  by  the  officer  is  called  the  "jurat/ 

If  the  "person  making  the  affidavit  is  blind  or  illiterate, 
the  jurat  of  the  officer  taking  the  affidavit  must  state  this  fact 
and  also  that  the  affidavit  was  read  to  said  person  m  his 
hearing  and  that  he  seemed  to  understand  its  contents.  In 
the  case  of  an  affidavit  by  a  foreigner,  the  jurat  must  state 
that  fact  and  also  that  the  affidavit  was  interpreted  to  him 
by  someone,  duly  sworn,  with  knowledge  of  his  language. 

An  affidavit  is  used  for  many  purposes.  In  connection 
with  pending  litigation  most  pleadings  are  required  to  be 
verified  by  affidavit.  Motions  and  applications  for  action  of 
any  kind  by  a  court  must  usually  be  supported  by  affidavits. 
When  preliminary  injunctions  are  asked,  long  affidavits  are 
usually  filed  with  the  application. 


754 


FORMS 


EVIDENCING  AN   INSTRUMENT 


755 


i    ; 


I 


1 

1' 


In  probate,  bankruptcy,  and  similar  legal  proceedings,  all 
papers,  reports,  and  statements  are  verified  by  affidavit  of  the 
proper  party.  In  business  life  a  multitude  of  statements, 
reports,  and  instruments  of  various  kinds  must  be  evidenced 
by  affidavit.  So  common  has  the  matter  become  that  most 
of  the  sanctity  that  was  supposed  to  attend  an  oath  has  van- 
ished. The  easy  conscience  of  managing  clerks  in  law  offices 
as  to  making  affidavits  is  a  matter  for  jest,  while  tax  reports 
usually  offer  a  handsome  premium  for  perjury. 

In  many  cases  where  it  is  necessary  to  have  the  evidence 
of  people  who  live  in  other  states  and  in  foreign  countries, 
their  attendance  at  court  cannot  be  secured  and  the  only  way 
that  their  evidence  can  be  secured  is  to  take  their  depositions. 
Depositions  are  formal,  written  statements  for  use  at  trials, 
of  answers  under  oath  to  questions  propounded  by  the 
lawyers  on  each  side.  A  deposition  is  a  direct  examination 
tinder  oath  followed  by  a  cross-examination,  also  written,  the 
answers  being  taken  down  in  shorthand  and  later  transcribed, 
and  after  being  read  over,  are  signed  and  sworn  to  by  the 
witness.  In  some  cases,  instead  of  an  oral  examination  and 
cross-examination,  the  answers  alone  being  reduced  to  writ- 
ing, the  attorney  who  asks  for  the  deposition  prepares  his 
questions  and  has  them  written  out  and  submits  them  to  the 
lawyer  on  the  other  side,  who  then  prepares  his  cross-examina- 
tion in  writing,  after  which  an  officer  of  the  court  issues  a 
commission  to  some  officer  authorized  to  administer  oaths, 
who  propounds  the  queries,  records  the  answers,  and  returns 
the  completed  testimony  to  the  clerk  of  the  court  with  a  large 
bill  of  costs. 

A  deposition  differs  from  an  affidavit  in  these  particulars  : 

I.  It  is  taken  to  be  used  in  a  suit,  after  notice  and 
opportunity  has  been  offered  the  other  side  to 
participate. 


2,  It  can  be  used  as  evidence  in  the  trial  where  an  affidavit 
would  not  be  admissible  because  the  other  side 
had  not  had  opportunity  to  cross-examine  the 
witness. 

As  compared  with  personal  examination  in  open  court,  a 
deposition  is  costly,  troublesome,  and  unsatisfactory. 

Officers  Authorized  to  Take  Acknowledgments  and  to  Ad- 
minister Oaths.  A  notary  public  is  the  usual  officer  before 
whom  acknowledgments  are  made  and  by  whom  affidavits  are 
taken.  In  France  the  office  is  of  considerable  dignity  and 
emolument.  In  most  civilized  countries  the  office  exists.  The 
usual  requirements  are  citizenship  and  majority.  His  or  her 
powers  are  ministerial,  not  judicial.  In  New  York,  notaries 
are  appointed  by  and  with  the  advice  and  consent  of  the 
Senate.    The  notary's  commission  gives  him  authority  for  a 

term  of  two  years. 

A  notary  has  no  judicial  discretion  and  must  in  all  cases 
perform  the  duties  of  his  office.  He  may  be  compelled,  if 
need  be,  to  perform  his  duty.     He  is  compensated  by  fees 

prescribed  by  law. 

A  commissioner  of  deeds  is  an  officer  appointed  by  the 
common  council  of  a  city  to  act  in  the  city  limits,  and  ap- 
pointed by  the  governor  if  outside  the  city  limits.  He  is 
authorized:  (i)  to  administer  oaths,  (2)  to  take  acknowledg- 
ments. His  powers  do  not  extend  beyond  these  limits.  In 
other  states  and  in  foreign  countries  a  New  York  commis- 
sioner is  empowered  by  the  governor  of  New  York  to  take 
acknowledgments  to  instruments  to  be  recorded  in  New  York. 
In  the  state  of  New  York  are  commissioners  for  other  states, 
with  like  authority  for  the  states  they  represent. 

A  justice  of  the  peace  is  authorized  to  take  acknowledg- 
ments or  to  administer  oaths  in  the  county  in  which  he  exer- 
cises his  office. 


7S6 


FORMS 


Generally  a  clerk  or  a  deputy  clerk  of  any  court  may  take 
acknowledgments  or  administer  oaths.  As  a  rule,  all  judges, 
mayors,  or  recorders  of  cities  are  authorized  to  take  acknowl- 
edgments  or  tc  administer  oaths.  In  other  states  the  several 
officers  named  have  like  authority. 

Outside  of  the  United  States  a  conveyance  may  be  acknowl- 
edged or  proved  before  a  consular  officer  of  the  United  States, 
or  a  commissioner  appointed  by  the  governor  of  the  particular 
state,  or  an  ambassador,  or  a  minister,  duly  accredited,  to  that 
country. 


CHAPTER  C 
CONTRACT  FORMS 

The  forms  that  foUow  cannot  be  comprehensive  but  are 
intended  to  be  suggestive.  When  a  person  who  has  had  no 
legal  training  attempts  to  write  a  contract,  he  will  do  weU  to 
avoid  legal  language  and  to  express  himself  in  plam,  straight- 
forward English  such  as  he  is  accustomed  to  use  in  busmess. 
Attempts  to  use  technical  phrases  usually  result  in  obscurity 
and  prolixity.  It  should  be  said  further  that  where  the  subject 
matter  is  important  or  valuable,  professional  assistance  should 
be  secured. 


Form  13.    Simple  Contract 


Agreement 


T»i;c  agreement  is  made  this  22d  day  of  January,   1920.  between 

"SSS  inttrr^r™?  *&i:?K»»  Hu 

f„°;?dit°ot  Waiit^  M^^^^^^^        to  receive  the  material  from  the  old 
ience  now  between  the  pastures.      ^^^^^^^  ^^^^^^ 

John  Robertson 


The  foregoing  agreement  has  the  elements  of  a  contract 
arranged  in  separate  paragraphs:  (i)  competent  parties,  (2) 
something  to  be  done,  (3)  the  consideration. 

757 


IS' 


758 


FORMS 


CONTRACT  FORMS 


759 


Form  14.    Contract  by  Letters 


Tbu^tees  op  Trenton  Choral  Society, 
2x1  Greensward  Street, 
Trenton,  New  Jersey. 


Trenton,  New  Jersey, 

January  17,  1920 


Gentlemen  : — 

Your  inquiry  of  the  15th  has  been  received.  We  can  let  you  have 
the  use,  including  light  and  heat,  of  the  Main  Hall  in  our  building,  484 
Main  Street,  for  two  nights,  February  20  and  21,  1920,  for  the  concerts 
of  your  Society,  for  seventy-five  dollars  a  night,  or  one  hundred  and 
fifty  dollars  for  the  two  nights.  It  is  understood  that  this  contract  is 
with  you  three  gentlemen  personally  and  that  you  individually  agree  to 
pay  the  specified  rent 

Yours  very  truly, 

Hayes  &  Marcus 


Messrs.  Hayes  &  Marcus, 
484  Main  Street, 

Trenton,  New  Jersey. 


Trenton,  New  Jersey, 

January  19,  1920 


Gentlemen  :— 

Your  proposition,  contained  in  your  letter  of  the  17th  is  accepted 
and  we  shall  arrange  for  the  concerts  February  20  and  21  as  specified. 

We  bind  ourselves  individually  to  pay  the  price  named,  one  hundred 
md  fifty  dollars,  for  the  two  nights. 

Respectfully  yours, 
H.  J.  Thomas 
John  £.  Baker 
Alfred  Dickson 


Form  15.    Unilateral  Contract 


Agreement 


In  consideration  of  the  sum  of  Seventy- Five  Dollars  ($75)  to  me  in 
hand  paid  by  Henry  Adams,  the  receipt  whereof  is  hereby  acknowledged, 
I  agree  and  bind  myself  to  remove  all  signs  projecting  more  than  six 
inches  from  the  front  of  the  building,  No.  241  Summit  Street,  Akron» 
Ohio,  occupied  by  me  as  a  hardware  store,  and  I  will  not  place  nor  allow 
to  be  placed  any  sign  or  other  projection  extending  more  than  six  inches 
from  the  front  of  the  said  building  during  the  term  of  my  lease  which 
expires  three  years  from  January  i,  1920. 


Arthur  Alleic 


Akron,  Ohio, 

February  11,  1920 


The  foregoing  contract  is  a  unilateral  concract  and  is 
signed  by  but  one  of  the  parties,  the  other  party  having 
executed  his  part  of  it — the  payment  of  the  consideration.  It 
fulfils  the  requirements  of  the  Statute  of  Frauds,  being  a 
memorandum  signed  by  the  party  to  be  charged  with  respon- 
sibility in  the  matter. 

Form  16.     Formal  Contract 

Agreement 


This  agreement  entered  into  this  26th  day  of  January,  1920,  between 
Charles  Davenport  of  Lexington,  Kentucky,  and  George  Atkins  of  the 
same  place,  sets  forth  that  the  said  parties  have  entered  into  the  following 

contract : 

1.  Charles  Davenport  agrees  and  binds  himself  to  take  the  auperin- 
tendency  of  the  stock  farm  of  the  said  George  Atkins  known  as  Highland 
Park  and  situated  ten  miles  northeast  of  Lexington,  and  to  give  his  entire 
time  to  his  duties  as  such  superintendent. 

2.  His  duties  will  require  that  he  reside  on  the  said  premises  and  he 
is  to  have  the  use  of  the  house  on  the  Midland  Road  in  the  northwest 
part  of  said  property  for  himself  and  family,  together  with  the  garden 
ground  immediately  surrounding  it  and  the  use  of  the  outbuildings  thereto 

attached. 

(Other  numbered  sections  will  set  forth  his  duties  and  obligations  as 
fully  as  may  be  desired.) 

11.  In  consideration  of  the  foregoing  undertakings  of  the  said 
Charles  Davenport,  the  said  George  Atkins  agrees  and  binds  himself  to 
pay  to  the  said  Charles  Davenport  the  sum  of  Twenty-Four  Hundred 
Dollars  ($2400)  per  annum,  to  be  paid  in  monthly  instalments  of  Two 
Hundred  Dollars  ($200)  on  the  last  day  of  each  month,  and  in  addition 
thereto  a  commission  of  ten  per  cent  on  the  price  of  all  live  stock  sold 
from  the  premises  during  the  period  of  this  agreement  and  for  one  year 
thereafter. 

12.  This  agreement  shall  begin  March  i,  1920,  and  shall  continue  for 
three  years  from  that  date  and  thereafter  from  year  to  year  until  either 
party  terminates  the  agreement  by  giving  the  other  party  notice  of  his 
desire  to  terminate  the  agreement,  six  months  before  the  next  March. 

In  witness  of  this  agreement  the  said  parties  have  hereunto  affixed 
their  signatures  this  26th  day  of  January,  1920. 

Charles  Davenport 
George  Atkins 


4ltl 


w 


I 


760 


FORMS 


CONTRACT  FORMS 


761 


Form  17.    Corporate  Contract 


Contract 


An  agreement  made  and  entered  into  this  6th  day  of  February,  a.d. 
1920,  by  and  between  the  Warren  Lithographing  Company,  a  corporation 
under  the  laws  of  the  State  of  Maine,  doing  business  in  Worcester,  Mass., 
party  of  the  first  part,  and  the  Houston  Lithographing  Company,  a  cor- 
poration under  tlie  laws  of  the  State  of  New  York,  having  its  principal 
ofiice  at  No.  20  Broad  Street,  New  York  City,  party  of  the  second  part. 

For  and  in  consideration  of  the  sum  of  One  Dollar  and  of  other 
valuable  considerations  passing  between  the  parties  hereto,  the  receipt 
whereof  is  hereby  respectively  acknowledged,  it  is  agreed  as  follows: 

1.  That  the  said  party  of  the  first  part  shall  employ  one  John  Putnam 
of  Hartford,  Connecticut,  for  account  of  both  the  parties  hereunto,  to 
work  upon  and  perfect  as  far  as  may  be,  a  certain  improvement  in 
lithography  known  as  the  "Copper  Plate  Process,"  said  process  being  now 
the  joint  property  of  the  said  parties  to  this  present  agreement. 

2.  That  said  party  of  the  first  part  shall  pay  the  said  John  Putnam 
a  monthly  salary  not  exceeding  Three  Hundred  Dollars  ($300)  and  shall 
also  furnish  such  materials,  supplies,  and  assistance  as  the  said  John 
Putnam  may  reasonably  require  in  the  process  of  his  work. 

3.  That  at  the  end  of  each  quarter  said  party  of  the  first  part  shall 
render  a  statement  of  the  expenses  incurred  by  reason  of  the  employment 
of  the  said  John  Putnam  for  the  perfection  of  the  said  Copper  Plate 
Process,  and  said  party  of  the  second  part  shall  within  ten  da3rs  of  the 
receipt  of  said  statement  remit  one-half  thereof  to  the  said  party  of  the 
first  part. 

4.  That  all  improvements  in  said  Copper  Plate  Process  or  in  connec- 
tion therewith  that  may  be  made  or  discovered  by  the  said  John  Putnam, 
shall  be  the  joint  and  equal  property  of  the  two  parties  to  this  present 
agreement,  and  patents  therefor  shall  be  taken  out  in  the  names  of  the 
said  parties  of  this  present  agreement  and  at  their  joint  expense. 

5.  That  said  employment  of  said  John  Putnam  shall  continue  for 
©ne  year  from  date,  unless  sooner  terminated  by  mutual  agreement  or  by 
circumstances  beyond  the  control  of  the  parties  hereto. 

{Testimonium  and  signatures  as  in  Form  5.) 


Form  18.    Assignment  of  Contract 


Assignment 


Know  All  Men  by  These  Presents  : 

That  for  and  in  consideration  of  the  payment  by  the  Connecticut 
Valley  Paper  Mills,  a  corporation  organized  under  the  laws  of  the  State 
of  Connecticut,  and  having  its  principal  office  and  place  of  business  at  525 
Main  Street,  New  Haven,  Connecticut,  of  Twenty-five  Thousand,  Seven 
Hundred  and  Forty-five  Dollars  ($25,745)  to  James  Holden,  having  his 
office  and  place  of  business  at  152  Warren  Street,  New  York  City,  the 


receipt  of  which  payment  is  by  the  said  Holden  hereby  acknowledged, 
said  James  Holden  does  hereby  assign,  transfer,  and  convey  to  the  said 
Connecticut  Valley  Paper  Mills,  all  and  singular,  his  right,  title,  and 
interest  of  every  kind  in  and  to  a  certain  contract  (copy  of  which  is 
hereunto  annexed  and  made  part  of  this  present  instrument)  entered 
into  on  the  28th  day  of  February,  1920,  between  Martin  S.  Coleman  of 
Brooklyn,  New  York,  and  said  James  Holden,  said  contract  vesting  in 
said  Holden,  his  representatives  and  assigns,  under  the  conditions  in  said 
contract,  the  exclusive  right  to  acquire  and  use  all  the  inventions  and 
processes  that  may  hereafter  be  made,  discovered,  or  devised  by  the 
said  Coleman  for  the  manufacture  of  paper  or  to  be  used  in  connection 
therewith,  said  contract  being  conveyed  to  and  accepted  by  the  said  (Con- 
necticut Valley  Paper  Mills  with  all  its  rights,  privileges,  and  obligations 
as  herein  set  forth  and  as  hereunto  held  by  the  said  James  Holden. 

In  Witness  Whereof,  the  said  James  Holden  has  hereunto 
affixed  his  signature  and  seal,  in  the  City,  County,  and 
State  of  New  York,  on  this  28th  day  of  March,  1920. 


Attest: 

Mary  Wilford 


James  Holden 


[L.S.] 


Acknowledgment  is  not  essential  to  this  assignment  but  is 
advisable. 

The  assignment  of  contract  which  follows  is  informal  but 
sufficient  where  the  whole  transaction  is  well  understood.  In 
practice  it  is  usually  indorsed  on  the  back  of  the  contract  to  be 
assigned,  or,  with  the  word  "within"  changed  to  "above  and 
foregoing,"  is  placed  on  the  last  page  of  the  contract. 

Fonn  19.    Assignment  of  Contract — Indorsement  Form 

For  and  in  consideration  of  One  Dollar  and  of  other  sufficient  con- 
siderations, the  receipt  of  all  of  which  is  hereby  acknowledged,  the  Sterling 
Power  Company  does  hereby  sell,  assign,  and  transfer  to  Howard  Graham 
the  within  contract  with  all  the  rights,  privileges,  obligations,  and  under- 
takings thereof  as  therein  set  forth. 

In  Witness  Whereof,  the  signature  and  the  attested  seal  of 
the  said  Sterling  Power  Company  are  hereunto  affixed  by 
its  duly  authorized  officers  this  31st  day  of  January,  1920. 


/  CORPORATE 
\         SEAL 


} 


Sterling  Power  Company, 
By  Miller  Sterling, 

President 


Attest  Seal: 

HcNRY  Welling, 

Secretary 


FORMS   OF   SALES  CONTRACTS 


763 


Fonn  21.    Contract  of  Sale  By  Letters 


Offer 


CHAPTER  CI 


FORMS  OF  SALES  CONTRACTS 


Form  90.    Memorandum  of  Sale 


Memokanduki 


The  Kelley  Commission  Company, 
159  La  Salle  Street,  Chicago,  Illinois 

Febniaiy  21,  1920 
We  have  this  day  sold  to  John  D.  Heiden,  Urbana,  Illinois,  payable 
sixty  days  after  delivery,  five  per  cent  discount  for  cash,  the  following 

goods: 

50  barrels  of  flour  @  $12.50  per  barrel, 
aelivery  to  be  made  within  ten  days,  f  .o.b. 
Chicago. 

The  Kelley  Commission  Company, 
By  Henry  Tompkins, 

Treasurer 
John  D.  Heiden 


The  above  memorandum  is  sufficient  under  the  Statute  of 
Frauds  to  make  a  binding  contract,  and  it  will  be  noted  it  is 
signed  by  both  parties.     If  only  one  party  signed,  he  alone 

could  be  held. 

A  letter  making  an  oflfer,  which  is  accepted  by  another 
letter,  is  the  simplest  form  of  written  contract.  Form  21 
is  an  example  of  contract  by  letters,  showing  the  offer  and 
acceptance. 

762 


Mount  Holley  Iron  Company, 
Ashfield,  N.  J. 


January  10,  1920 


Mr.  Richard  A.  Perry, 
365  Amity  Street, 
Newark,  N.  J. 

Dear  Sir  : —  ,  .  r  e  j  l  i^ 

Our  company  has  on  hand  some  thirty  or  forty  tons  of  nut  and  bolt 
scraps  which  we  shall  be  pleased  to  sell  at  $1.30  per  hundredweight,  terms 
30  days,  and  deliver  in  Newark  within  five  days  after  order.  We  will  sell 
in  lots  of  not  less  than  ten  tons.  „     r    . . 

Kindly  advise  at  earhest  convenience  if  you  desire  any  or  all  of  this 

material 

Yours  very  truly, 

Mount  Holley  Iron  Company, 

By  J.  Sheldon, 

Secretary 


Acceptance 


Mount  Holley  Iron  Company, 

Ashfield,  N.  J. 


Newark,  January  12,  192a 


Gentlemen: — 

In  reply  to  your  letter  of  January  10,  I  shall  be  pleased  to  take  fifteen 
tons  of  the  nut  and  bolt  scraps  you  describe,  at  price  and  on  terms  named, 
provided  same  is  delivered  on  or  before  the  19th  of  this  month. 

Yours  very  truly, 
Richard  A.  Perry 


Form  22.    Conditional  Sales  Contract 


Lease  Agreement 


This  agreement  certifies  that  Harry  D.  McKay,  the  undersigned,  now 
living  at  136  Park  Place,  New  Rochelle,  New  York,  has  received  from  the 
W.  H.  Cary  Manufacturing  Company,  a  corporation  under  the  laws  of 
New  York,  one  second-hand  Dodge  automobile,  returnable  on  demand,  in 


7^4 


FORMS 


good  order  and  repair,  and  valued  at  Five  Hundred  and  Forty  Dollars 
($540).  This  the  undersigned  agrees  to  use  with  care  and  keep  in  good 
order  and  condition,  and  he  agrees  to  pay  for  the  use  of  it  as  follows : 

On  delivery  of  said  property,  One  Hundred  Dollars  ($100),  which 
shall  be  accepted  as  payment  for  rent  until  March  i,  1920,  and  then  he 
shall  pay  at  the  rate  of  Twenty-Five  Dollars  ($25)  per  month  in  advance 
on  the  first  day  of  each  and  every  month,  without  notice  or  demand,  at  the 
office  of  the  said  W.  H.  Cary  Manufacturing  Company,  No.  485  Adams 
Street,  Brooklyn,  New  York.  If  default  be  made  in  any  of  the  payments 
so  provided,  or  in  case  the  undersigned  shall  sell,  offer  to  sell,  remove,  or 
attempt  to  remove  said  property  from  under  his  custody  or  control,  without 
the  consent  in  writing  of  the  said  W.  H.  Cary  Manufacturing  Company, 
then  this  lease  shall  cease  and  terminate,  and  the  said  W.  H.  Cary  Manu- 
facturing Company,  or  its  agent,  is  authorized  to  take  actual  possession 
of  said  property  wherever  the  same  may  be. 

It  is  further  agreed  that  the  undersigned  may  at  any  time  within  said 
rental  period  purchase  the  said  automobile  by  paying  the  named  valuation 
therefor,  and  in  that  case  the  rent  theretofore  paid  shall  be  deducted  from 
the  purchase  price.  If  any  instalment  of  rent  is  not  paid  when  due,  or  if 
said  property  is  not  returned  upon  demand,  the  undersigned  agrees  to  pay 
an  attorney's  fee  of  Twenty- Five  Dollars  ($25)  in  case  his  lease  is  placed 
in  the  hands  of  an  attorney  for  collection  of  said  rent,  or  to  recover  pos- 
session of  the  said  automobile. 


Hakry  D.  McKay 


New  Rochelle,  New  York, 
January  10,  1920 

Attest: 

Heniy  Smith 


The  above  is  a  form  of  a  conditional  contract  used  in  the 
sale  of  goods  on  instalments.  Signed  by  the  vendee,  it  is  good 
in  New  York  and  can  be  filed  without  acknowledgment  or 
affidavit. 

If  it  were  desired  to  make  such  a  contract  in  any  other 
state,  it  would  be  necessary  to  see  what  the  state  laws  are 
in  regard  to  conditional  sales,  and  it  would  not  be  safe  to 
proceed  without  such  an  investigation  or  the  employment  of  a 
lawyer. 

In  any  state  one  can  apply  to  an  instalment  house  or  to 
an  agent  for  automobiles,  cash  registers,  pianos,  safes,  or  other 
similar  articles,  and  get  a  blank  form  that  will  meet  local 
requirements. 


FORMS  OF  SALES  CONTRACTS 


765 


Form  23.    BUI  of  Sale— Personal 


Bill  of  Sale 


Be  it  known  that  Thomas  Gray  of  Beaver  Falls,  Pennsylvania,  in 
considerati^  of  the  sum  of   One   Hundred  and   Seventy-Five   Dollars 
($"70   paM  by  Allen   Ruskin  of   Pittsburgh,  Pennsylvania,  the  receipt 
Eof'is  hereby  acknowledged    <f-^hereby  sell    transfer    and  de^^^^^ 
unto  the  said  Allen  Ruskin  the  following  goods  and  chattels,  namely . 

(Itemised  list  of  goods  and  chattels.) 

To  have  and  to  hold,  all  and  singular,  the  said  goods  and  .c^a^els  to 
the  sa°d  Allen  Ruskin,  his  representatives,  and  assigns  to  their  use  and 
behoof  forever,  and  I  hereby  covenant  that  I  am  the  lawfu   owner  of  the 

said  goods  and  chattels,  that  they  are  ""e"<;""^^,^'\f ;  „*5^*J  tkirofthe 
right  to  sell  the  same,  and  that  I  will  warrant  and  defend  the  title  ot  the 
RMne  against  the  claims  and  demands  of  all  persons.         ,       ,        ,        ,  • 
same  agamsyne  c^  Whereof.  I  have  hereunto  set  my  hand  and  seal  m 

Beaver  Falls,  Pennsylvania,  this  30th  day  of  January,  1920. 


Thomas  Gray 


[L.S.] 


Form  34.    Bill  of  Sale— Personal 

Bill  of  Sale 


In  consideration  of  the  sum  of  Eight  Hundred  Dollars  ($800)  cash^ 
fn  mi  i^haid  oaid  by  Emily  Gates  of  New  York  City,  New  York  (vendee 
her^fn  the  St  whtTof  is  hereby  acknowledged  I,  Margaret  Banning 
oPncw  York  aty.  New  York  (vendor  herein),  do  hereby  sell,  assign. 
♦ran«;fpr   and  convey  to  the  said  Emily  Gates :  ,     , ,.  * 

AU  and  sh?^lar  the  household  goods  and  furniture,  bedding  carpets, 
All  ana  smKuwi  glassware,  and  sundr  es  contained   in  my 

JSncf  No '2^  West  sShSweerNevl  York  City  New  York,  the  same 
being  more  particularly  set  out  in  the  inventory  hereunto  attached  and 

'"*'*TXve'Md  io  hold  the  said  goods  and  chattels  to  the  sole  use  and 
behoof  of  Ihe  said  Emily  Gates,  her  heirs,  assigns,  and  personal  represen- 

**"TndTdo  hereby  covenant  with  the  said  Emily  Gates  that  I  am  the 
lawfulowner  of  the  said  goods  and  chattels;  that  *ey  are  free  from  a 
ims-  that  I  have  good  right  to  sell  the  same  as  aforesaid;  and  that  I  vnll 
warranV  and  defend  the  same  against  the  lawful  claims  and  demands  of 

all  person^.  ^^^^^  Whebeot,  I  have  hereunto  affixed  my  hand  and  seal, 
this  24th  day  of  February,  1920. 


Margaret  Banning 


[t.S.1 


766 

State  op  New  Yobk 
County  of  New  Yoik 


FORMS 


} 


J#*« 


On  this  24th  day  of  February,  1920,  before  me  personally  appeared 
Margaret  Banning,  to  me  known,  and  known  to  me,  to  be  the  person 
described  in  and  who  executed  the  foregoing  bill  of  sale,  and  acknowl- 
edged to  me  that  she  executed  the  same  for  the  uses  and  purposes  therein 
let  forth. 

OscAE  Wyatt, 

Notary  Public  No.  380, 
New  York  County,  N.  Y. 


The  acknowledgment  to  the  foregoing  bill  of  sale  is  not 
essential  but  is  often  added. 


Fonn  35.    Contract  of  Warranty 

The  Benedict  Wagon  CbMPAifY, 
Columbus,  Ohio 

January  15,  1920 
Mr.  John  R  Couktney, 
Mount  Adams,  Ohio. 
Deak  Sir:— 

We  have  received  your  letter  making  inquiry  as  to  our  platform  spring 
wagons  shown  on  the  catalogue  heretofore  sent  you. 

Our  No.  530  Standard  is  well  made  and  has  the  best  quality  of  wood 
and  steel  in  every  part.  We  will  warrant  it  for  one  year  to  carry  loads 
not  in  excess  of  four  tons,  anywhere  on  a  country  road,  if  drawn  by  two 
horses.  We  will  warrant  the  springs  and  running  gear  against  any  flaw 
in  material  or  workmanship  for  five  years  after  purchase.  The  price  is 
$250,  and.  if  you  desire,  it  can  be  paid  half  down  and  the  balance  by  your 
note  at  one  year. 

May  we  ship  you  the  wagon? 

Very  truly  yours, 

The  Benedict  Wagon  Company 


Mount  Adams,  Ohio, 

January  17,  1920 

The  Benedict  Wagon  Company, 

Columbus,  Ohio. 
Gentlemen  : — 

Your  letter  of  January  15  has  been  received.    I  shall  be  pleased  to 
take  the  wagon  on  the  terms  and  under  warranty  specified. 

Very  truly  yours, 
John  £.  Courtney 


CHAPTER  CII 
AGENCY  FORMS 

Fonn  26.    Appointment  of  Special  Agent 

Appointment  of  Agent 


I,  the  undersigned,  do  hereby  constitute  and  appoint  Arthur  C^McCall 
of  Cincinnati  Ohio,  my  agent  and  representative,  for  me  and  m  my  place 
and  ?eTto  recei^  and  riceipt  for  any  and  all  payments  fh^t  may  ^pay- 
able to  me  from  the  estate  of  Howard  Lansmg  deceased,  late  of  Hamilton 
Countv  State  of  Ohio,  and  authorize  him  to  do  all  other  things  that  may 
be  necessary  to  carry  int^  effect  the  intent  of  this  appointment,  and  I 
hereby  ratify  and  confirm  all  that  my  said  agent  may  do  in  pursuance  of 

the  authority  herein  conferred.  «.      ,  •       ^        a 

tne  ^"^""^^^j^j^ggg  Whereof,  I  have  hereunto  affixed  my  signature  and 

seal,  in  Brooklyn,  New  York,  this  8th  day  of  January,  1920. 

John  H.  Martin  [l.s.J 


Form  27.    Appointment  of  General  Agent 

Appointment  of  Agent 


Know  All  Men  BY  These  Presents  : .  tt  •♦-^ 

That  I.  the  undersigned,  having  enlisted  m  the  service  of  the  United 
States,  and  having  to  be  absent  during  the  term  of  such  service,  do  hereby 
make,  constitute,  Ind  appoint  William  F.  Watkins  of  Ne>vark.  New  Jersey 
my  general  agent  and  attorney-in-fact,  giving  and  granting  unto  him  full 
power  and  authority  to  do  and  perform  all  things  requisite  and  necessary 
to  the  management  and  care  of  my  property  and  business,  and  m  particular 
to  the  conduct  of  the  coal  and  fuel  business  under  the  name  of  the  Key- 
stone Fuel  Company,  of  which  I  am  sole  owner  and  proprietor,  having  its 
office  at  No.  421  Market  Street,  Newark,  New  Jersey,  and  its  yards  and 
storage  rooms  on  the  line  of  the  Erie  Railroad  in  the  northern  part  of  the 
said  city  of  Newark.    And  I  hereby  give  the  said  agent  po>yer  to  do  and 
perform  all  things  necessary  to  be  done  in  the  conduct  of  said  business  as 
fully  and  to  all  intents  and  purposes  as  I  could  myself  do  if  personally 
present-  and  I  do  hereby  authorize  and  empower  him  to  sign  as  agent  all 
letters,  orders,  bills,  and  receipts  necessary  in  the  conduct  of  said  business, 
and  to  indorse  for  collection  and  deposit  all  checks  and  bills  of  exchange 
in  the  name  of  the  said  company,  and  to  draw  checks  on  such  deposits  as 

767 


hi 


768 


FORMS 


AGENCY  FORMS 


769 


agent,  and  I  empower  him  to  order  coal  and  other  fuel  needed  for  the 
conduct  of  the  said  business  up  to  but  not  exceeding  Five  Thousand 
Dollars  ($5,000)  at  any  one  time,  it  being  understood  and  agreed  that  any 
orders  in  excess  of  that  amount  shall  be  sent  to  my  lawyer,  Henry 
Herbert,  124  Broad  St.,  Newark,  for  his  countersignature. 

In  Witness  Whereof,  I  have  hereunto  set  my  hand  and  seal  this 
twenty-eighth  day  of  January  in  the  year  one  thousand,  nine 
hundred  and  eighteen. 

Paul  Penfield  [l.s.1 

Witness : 

Habry  Alfokd 


In  connection  with  an  agency  such  as  this,  there  should  be 
a  carefully  drawn  contract,  signed  by  both  parties,  setting 
forth  in  more  detail  the  duties,  obligations,  and  compensation 
of  the  agent.  The  appointment  as  agent  is  to  be  shown  to 
those  dealt  with  as  evidence  of  the  extent  of  his  authority. 

Form  a8.    Power  of  Attorney 

PowEE  OF  Attorney 


Know  all  men  by  these  presents  that  I,  Horace  M.  Maxwell  of  Cin- 
cinnati, Ohio,  have  made,  constituted,  and  appointed,  and  by  these  presents 
do  make,  constitute,  and  appoint  Julian  Blanchar'  of  New  York  City  my 
true  and  lawful  attorney  for  me  and  in  my  name,  place,  and  stead  to  (set 
out  fully  what  is  to  be  done  by  the  attorney);  giving  and  granting  unto 
my  said  attorney  full  power  and  authority  to  do  and  perform  all  and 
every  act  and  thing  whatsoever  requisite  and  necessary  to  be  done  in  and 
about  the  premises,  as  fully  to  all  intents  and  purposes,  as  I  might  or 
could  do  if  personally  present,  with  full  power  of  substitution  and  revoca- 
tion, hereby  ratifying  and  confirming  all  that  my  said  attorney  or  his 
substitute  shall  lawfully  do  or  cause  to  be  done  by  virtue  hereof. 

In  Witness  Whereof,  I  have  hereunto  set  my  hand  and  seal  this 

eleventh  day  of  March  in  the  year  one  thousand,  nine  hundred 

and  twenty. 

Horace  M.  Maxwell  [l.s.] 

Executed  and  delivered 
in  the  presence  of : 
Marion  Colgate 


The  foregoing  is  a  simple  form  of  power  of  attorney  and 
can  be  used  to  empower  another  person  to  act  and  to  do  any 
business  as  an  agent  or  representative  of  the  principal  who 
executes  the  power.     If  it  were  required  that  the  attorney 


should  execute  a  deed,  or  mortgage,  or  any  other  transaction 
involving  land,  or  execute  any  instrument  that  would  have  to 
be  filed  in  a  court  or  .office  of  registry,  it  would  be  necessary 
that  the  principal  should  execute  an  acknowledgment  before  a 
notary  public  or  other  officer  having  a  seal.  The  word^*  at- 
torney" as  used  here  does  not  mean  an  "attomey-at-law,  but 
an  "attorney-in-fact,"  or  agent  to  transact  business. 

Form  29.    Power  of  Attorney— Corporate 

Power  of  Attorney 


Drvers^Assocfrtion  during  the  month  of  February,  IQIQ.  and  the  s^d 
Howard  H  McComb  is  hefeby  fully  authorized  and  empowered  for  and 
on Tccount  of  the  said  Tucson  Cattle  Company  and  in  its  name,  to  collect 
recehre^nd  receipt  for  the  said  Three  Thousand  Dollars  ($3,000),  and 
the  Tnie??st  thereon  as  aforesaid,  in  whole  or  in  part,  but  without 
prejud  ce  to  any  portion  thereof  unpaid,  and  to  incur  and  Pay  on  behalf 
of  the  said  Tucson  Cattle  Company  all  reasonable  expenses  incident  to  the 
col  ection  of  said  amount,  including  all  proper  cost  of  any  suit  or  other 
fegal  p^^^  necessary  thereto,  and  generally  to  do  all  such  other 

thfngs  i^  connfction  therewith  as  may  be  necessary  and  proper  m  the 

premises,  ^^^^^^  Whereof,  the  said  Tucson  Cattle  Company  has 

caused  its  corporate  name  to  be  signed  hereunto  by  its 
President  and  its  corporate  seal  to  be  affixed  and  attested 
by  its  Secretary,  all  being  done  m  the  City  of  Tucson. 
Arizona,  on  this  the  26th  day  of  January.  1920. 


In 


{ 


corporate 

SEAL 


} 


Tucson  Cattle  Company, 
By  George  M.  Price, 

President 


Attest  Seal: 

Wilson  M.  Burney, 

Secretary 


The  foregoing  power  of  attorney  would  usually  be  ac- 


770 


FORMS 


AGENCY  FORMS 


771 


H 


knowlcdged  in  order  to  give  it  greater  weight  and  more  ready 
recognition. 

When  a  corporate  power  of  attorney  is  given  for  some 
special  act,  it  expires  automatically  as  soon  as  that  act  is  per- 
formed. AVhen,  however,  it  is  desired  to  terminate  the  powers 
prior  thereto,  or  where  the  power  is  a  continuing  one,  a  formal 
revocation  is  necessary.  Notice  of  this  revocation  should  be 
sent  to  the  parties  directly  interested,  and,  in  case  of  a  general 
power  of  attorney,  should  also  be  published. 

Fonn  30.    Revocation  of  Power  of  Attorney 

Revocation  of  Power  of  Attorney 


Know  All  Men  by  These  Presents  : 

That  the  Berwell  Investment  Company,  a  corporation  duly  organized 
and  existing  under  and  by  virtue  of  the  laws  of  the  State  of  New  York, 
and  having  its  office  and  principal  place  of  business  at  No.  30  Broad 
Street,  in  the  City  of  New  York,  has  for  good  cause  and  consideration 
revoked,  recalled,  annulled,  and  made  void,  and  by  these  presents  does 
revoke,  recall,  annul,  and  make  void,  a  certain  power  of  attorney  given 
tinder  date  of  August  18th,  1919,  under  its  corporate  signature  and  seal, 
to  George  B.  Baldwin  of  Houston,  Texas,  and  does  hereby  withdraw, 
deny,  and  cancel  any  and  all  powers  and  authorities  whatsoever  therein 
expressed  and  conveyed. 

In  Witness  Whereof,  the  said  Berwell  Investment  Company 
has  caused  its  corporate  signature  and  seal  to  be  hereunto 
affixed  by  its  President  and  Secretary  in  the  City  of  New 
York  on  this  19th  day  of  January,  1920. 


{ 


aXRFORATE 
SEAL 


} 


Berwell  Investment  Company, 
By  James  Warren, 

President 
WiLUS  Baker, 
Secretary 


Form  31.    Proxy— Simple  Form 

Proxy 

I  hereby  appoint  George  H.  Brewer  my  proxy,  with  full  authority  to 
vote  for  me  and  m  my  place  at  any  and  all  stockholders'  meetings  of  the 
Brewer  Plow  Company. 

Witness  my  hand  and  seal  this  8th  day  of  March,  1920. 

Wif««..H  K.  ^"^"^  ^'   McCORMICK  [L.S.1 

Witnessed  by 

Henry  F.  Simmons 


This  proxy  is  under  most  circumstances  legally  sufficient 
and  the  powers  it  conveys  are  broad.  A  more  formal  proxy  is, 
however,  desirable  when  important  matters  are  to  be  con- 
sidered. The  proxy  which  follows  is  still  simple  as  to  form 
but  more  specific  in  its  terms. 


Form  32.    Proxy — Unlimited 


Proxy 


I  the  undersigned,  do  hereby  constitute  and  appomt  George  J.  Mc- 
Clelland my  true  and  lawful  attorney  to  represent  me  at  any  and  all  meet- 
ings of  the  stockholders  of  the  Carney  Falls  Power  Company,  and  for 
me  and  in  my  name  and  stead  to  vote  thereat  upon  the  stock  standing  m 
my  name  on  the  books  of  said  Company  at  the  times  of  said  meetmgs, 
and  I  hereby  grant  my  said  attorney  all  the  powers  that  I  should  my- 
self possess  if  personally  present  thereat,  r  A  -1  ,«^ 
Witness  my  signature  and  seal  this  ist  day  of  April,  1920. 


Harold  B.  McClelland 


[l.s.1 


In  the  presence  of 

Alphonse  H.  Duret 


Proxies  for  the  first  meeting  of  stockholders  differ  but 
little  from  proxies  for  other  meetings,  though  they  are  usually 
limited  to  the  particular  meeting  and  its  adjournments. 

When  proxies  are  to  be  used,  they  are  filed  with  the  secre- 
tary of  the  meeting.  If  the  holder  desires  to  retain  his  original 
proxy,  he  may,  after  exhibiting  the  original,  file  a  certified 
copy  with  the  secretary  of  the  meeting. 

Form  33.    Revocation  of  Proxy 

Revocation  op  Proxy 


Know  All  Men  by  These  Presents  :  ,  .  ,  .    „ 

That  I,  the  undersigned,  do  hereby  revoke  and  annul  any  and  all 

proxies  or  powers  of  attorney  heretofore  given  by  me,  authorizing  or 

empowering  any  person  or  persons  to  represent  me,  or  vote  in  my  name 


4 

i 

I' J 


Ill 


77a 


FORMS 


and  stead  or  act  for  mc  in  any  way  whatsoever  at  any  meeting  or  meet- 
ings of  the  stockholders  of  the  Carney  Falls  Power  Company. 

Witness  my  signature  and  seal  this  loth  day  of  May,  1920. 


In  the  presence  of 
John  H.  Dunn 


Daniel  H.  Ronalds 


[L.S.] 


The  foregoing  revocation  of  outstanding  proxies  is  sweep- 
ing in  its  terms.  If  some  particular  proxy  is  to  be  excepted 
from  the  general  revocation,  such  proxy  may  be  specifically 
reserved,  or  otherwise  the  revocation  may  itself  be  limited  by 
its  terms  to  the  one  or  more  proxies  to  be  revoked,  and  any 
other  proxies  then  outstanding  are  not  affected. 


CHAPTER  CHI 

FORMS  OF  NEGOTIABLE  INSTRUMENTS 
Form  34.    Check  by  Individual 


No.  1213 


MoNTCLAiB,  N.  J.,  Febniarj'  2,  1920 

THE  FIRST  NATIONAL  BANK 
of  Montclair,  N.  J. 

Pay  to  the  order  of  Union  Congregational  Church $25  00/100 

Twenty-five  and  00/100 Dollars 

Frank  Gray  Melville 


Form  35.     Corporate  Check 


No.  1754 


New  York,  May  i,  1920 

SEABOARD  NATIONAL  BANK 
of  the  City  of  New  York 

Pay  to  the  order  of  John  H.  Wilkins $425  75/ioo 

Four  Hundred  Twenty-Five  and  75/100 Dollars 

Samuel  S.  Steigel, 
President 

Stewart  H.  Wilson, 
Treasurer 


The  corporate  seal  is  seldom  if  ever  used  on  corporate 
checks,  though  its  use  does  not  affect  the  check  in  any  way. 
When  the  corporate  funds  are  material  in  amount,  the  names 
of  two  officials  are  usually  required  upon  the  check.    Where 

773 


» 


til  ' 


ri 


774 


FORMS 


the  name  of  the  company  is  placed  elsewhere  on  the  check, 
it  may  be  omitted  from  the  signature  but  must  appear  in  the 
indorsement. 

If  the  by-lawa  or  a  directors'  resolution  require  that  the 
corporate  name  be  affixed  by  the  treasurer  and  the  check  be 
countersigned  by  the  president,  as  is  frequently  the  case,  the 
signatures  would  appear  as  follows: 


Countersigned : 

James  J.  McLane, 
Presideni 


Mermvale  Manufacturing  Co., 
By  Horace  P.  Wisner, 

Treasurer 


Form  36.     Corporate  Indorsement  of  Check 


(I) 


Vocel  Shoe  Company, 
Ralph  A.  Smith, 

Treasurer 


(a) 


Pay  to  the  Order  of  the 
Chase  National  Bank, 

Howell  Hardware  Company, 
John  Blake,  Treasurer 


The  ordinary  indorsement  of  a  check  payable  to  a  corpora- 
tion is  given  in  example  (i)  above.  This  indorsement  is 
usually  affixed  by  the  treasurer  or  cashier,  though  the  president 
is  frequently  authorized  thereto. 

The  form  of  indorsement  in  example  (2)  above  is  usually 
affixed  in  its  entirety — corporate  name,  official  signature,  etc. — 
with  a  rubber  stamp.  Such  an  indorsement  is  approved 
by  the  banks  and,  on  account  of  the  rapidity  and  convenience 
with  which  it  may  be  affixed,  is  the  one  employed  by  most 
corporations. 


FORMS  OF  NEGOTIABLE  INSTRUMENTS 
Form  37.     (a)  Voucher  Check  (face) 


775 


No.  5960  H.  G.  Waring  Company 

Dayton,  Ohio,  March  19,  1920 

Pay  to  the  order  of  W.  G.  Holden  &  Co $220  00/100 

Two  Hundred  Twenty  and  00/100 •  •  -Dollars 

In  full  payment  of  account  as  shown  on  the  reverse  side  of  this 
Voucher. 

To 

Winters  National  Bank,  H.  G.  Waring  Company, 

Cincinnati,  Ohio.  By  Percy  Macey, 


Treasurer 


(Folded  lengthwise  here) 


in 

M 

IS 
U 

i 


Form  37.     (b)  Voucher  Check— Statement  (reverse) 


Voucher  Check 


No.  1689 


H.  G.  Waring  Company, 

Daj-ton,  Ohio. 


Favor  of  W.  G.  Holden  &  Co. 
Address,  Hamilton,  Ohio. 


Feb.  6 


I  Fire-proof  Safe,  No.  2B. 


220 


00 


Audited  and  Approved, 

E.  E.  A. 

If  not  correct  return  without  alteration  or  changes. 


776 


FORMS 


There  are  many  forms  of  voucher  checks,  which  differ 
according  to  the  accounting  system  in  use.  The  matter  is 
one  that  may  profitably  be  investigated  by  all  who  are  in- 
terested. 

Duly  endorsed,  as  a  voucher  check  must  be  before  pay- 
ment is  made,  the  check  itself  affords  the  best  evidence  pos- 
sible of  the  settlement  made.  In  most  cases  it  saves  the 
expense  and  trouble  of  mailing  a  formal  receipt. 


Form  38.    Note  by  Individual 


$i,Soox»  MoNTCLAii,  N.  J.,  April  I,  1920 

Ninety  days after  date  I  promise  to  pay  to 

the  order  of  Kendrick  &  Ames 

Fifteen  Hundred  and  00/100 

at  their  office,  20  Market  St.,  Newark.  N.  J. 

Value  received. 
No.  315.  Due  June  30.  I9»  Habouj  A.  Wilson 


Ponii  39.    Corporate  Note— By  Prciidciit 


Ssooxx)  N^^  York,  April  i,  1920 

Ninety  days  after  date  the  Dclcock  Dredging  Company  promises 
to  pay  to  the  order  of  Howard  P.  Hunt  the  sum  of  Five  Hundred 
Dollars. 

Value  received.  ^  _ 

DdjOOCk  Dsedging  G>mpany, 

By  Nathaniel  Potter, 

President 

Payable  at 

Seaboard  National  Bakk, 
New  York 
No.  589 


FORMS   OF   NEGOTIABLE   INSTRUMENTS 
Form  40.    Corporate  Note— By  Treasurer 


777 


^500.00  Boston.  Mass.,  April  2,  1920. 

Four  months  after  date  the  Hanover  Securities  Company 
pron^ses  t^  pay  to  the  order  of  James  C.  Bennett  the  sum  of 
T^Sityyve  Hundred  Dollars,  with  interest  from  date  until  paid 
at  the  rate  of  Six  Per  Cent  per  annum,  at  the  Sedgwick  National 
Bank  of  Boston. 

Value  received.  „  /-^w„.„„ 

Hanover  Securities  Company. 

By  William  Curtis, 

President 

Attest  Seal: 

John  J.  Browne.  Jr.. 
Treasurer 

No.  725 

Due  August  2,  1920 


The  preceding  notes  are  in  the  simplest  form.  The  cor- 
porate signature  is  affixed  by  one  officer  or  by  two,  as  may  be 
customary  or  required  by  by-law  provision  or  directed  by  the 

board.  ,  j     t  u 

A  corporate  note  is  not  required  to  be  sealed.  It  may  be 
signed  by  any  officer  or  officers  properly  authorized  thereto. 
Such  authority  is  usually  conferred  by  by-law  provisions  or  by 
resolution  of  the  board  of  directors,  but  otherwise  may  be 
given  by  custom.  For  large  amounts  or  special  transactions 
outside  the  usual  routine,  the  officer's  authorization  should  al- 
ways be  specific  and  usually  by  resolution  of  the  board  of 

directors.  ,1. 

The  signature  of  a  corporate  note  should  always  be  the 
corporate  signature.  Any  other  signature  not  only  may  fail 
to  bind  the  corporation,  but  has  been  held  in  some  states  to 
involve  the  official  signing  the  note  in  a  personal  liability  as  its 

maker  or  indorser.  ,     .     t 

When  the  corporate  officials  are  not  expressly  authorized 

to  execute  notes  by  due  resolution  deposited  with  the  bank  in 


77^ 


FORMS 


whose  favor  the  notes  are  drawn,  a  certified  resolution  evi- 
dencing tlieir  authority  is  usually  required. 


Form  41.     Corporate  Note— Collateral  Security 


Collateral  Note 


$10,000.00 


New  York,  April  2,  1920. 


Ninety  days  after  date  the  Berwick  Mercantile  Company  promises 
to  pay  to  the  order  of  the  Guaranty  Trust  Company  of  New  York  City, 
at  No.  140  Broadway,  New  York  City,  the  sum  of  Ten  Thousand 
Dollars,  with  interest  from  date  until  paid  at  the  rate  of  Five  Per  Cent 
(5%)  per  annum,  and  the  said  Berwick  Mercantile  Company  does  here- 
with deposit  with  the  Guaranty  Trust  Company  as  collateral  security  for 
the  due  payment  of  the  foregoing  promissory  note.  Two  Hundred  (200) 
Shares  of  its  stock  in  one  Certificate  No.  325.  said  Certificate  standmg 
in  the  name  of  Mark  Baldwin,  Treasurer  of  the  said  Berwick  Mercantile 
Company,  and  indorsed  by  him  in  blank. 

And  in  the  event  that  this  note  or  the  interest  thereon  shall  not  be 
paid  when  due,  the  said  Berwick  Mercantile  Company  hereby  appoints 
and  constitutes  the  said  Guaranty  Trust  Company  its  attorney-in-fact  and 
irrevocably,  with  power  of  substitution,  to  sell  at  any  time  after  this  said 
note  or  any  interest  thereon  is  due  and  unpaid,  with  or  without  notice, 
and  either  at  public  or  private  sale,  the  whole  or  any  part  of  said  securi- 
ties, the  proceeds  thereof  to  be  applied  to  the  payment  of  the  said 
promissory  note,  any  interest  due  thereon,  and  any  commissions  properly 
payable  on  the  sales  of  said  securities  so  sold,  and  any  surplus  remaining 
thereafter,  either  of  cash  or  of  the  said  securities  to  belong  to  and  be 
subject  to  the  order  of  the  said  Berwick  Mercantile  Company;  and  should 
said  securities  not  bring  the  full  amount  of  this  present  note  together 
with  any  interest  accrued  thereon,  said  Berwick  Mercantile  Company 
undertakes  and  agrees  to  pay  the  amount  still  due  to  the  holder  hereof 

Should  any  such  sale  be  made,  the  holder  hereof  shall  directly  or  in 
the  name  of  any  other  person,  have  the  right  to  purchase  the  security 
aforesaid.  In  case  the  market  value  of  the  same  shall  decrease,  the  said 
Berwick  Mercantile  Company  hereby  promises  and  agrees  to  reduce  pro- 
portionately the  amount  of  its  indebtedness  hereunder,  or  otherwise  in- 
crease the  security  in  proportion  to  said  decrease  of  value. 

In  Witness  Whereof,  the  said  Berwick  Mercantile  Company 
has  caused  its  name  to  be  subscribed  hereunto  by  its  Presi- 
dent, and  its  duly  attested  seal  to  be  affixed  hereto  by  its 
Secretary,  on  the  day  and  year  first  above  written. 


{ 


CORPORATE 
SEAL 


) 


Berwick  Mercantile  Company, 
By  Henry  S.  Corbin, 

President 


Attest  Seal : 

Amos  C.  Hallock, 

Secretary 


FORMS  OF  NEGOTIABLE  INSTRUMENTS 


779 


Form  42.    Sight  Draft 


j^Q  745  Baltimore,  Md.,  January  7,  1920 

At  sight.... pay  to  the  order  of 

C  A.  Wheeler $^25  00/100 

Two  Hundred  Twenty-Five  and  00/100 Dollars 

Value  received,  and  charge  same  to  account  of 

Wilson  &  Stewart 

To  Union  National  Bank, 
St.  Louis,  Mo. 


Form  43.    Bank  Acceptance 


*-2o.oo  Denver,  Colo.,  January  24,  1920 

At  ninety  days  after  sight P^y  *° 

the  order  of  C.  A.  Wheeler ^"iV" 

Three  Hundred  Thirty  and  00/100 Dollars 

Value  received,  and  charge  same  to  account  of 

A.  B.  Tranning 

To  Commercial  Exchange  Bank, 

New  York,  N-  Y. 
No.  678 


The  word  "Accepted"  with  date  and  signature,  and 
memorandum  of  when  due,  will  be  written  in  red  ink  across 
the  face  of  the  above  draft  when  presented  for  acceptance  at 
the  Commercial  Exchange  Bank.  The  difference  between  this 
and  the  sight  draft  above  is  that  this  draft  is  paid  ninety  days 
after  sight  and  should  therefore  be  accepted  by  the  drawee. 

The  drawee  need  not  accept  immediately  on  presentation 
but  may  take  a  reasonable  time,  usually  twenty-four  hours, 
to  examine  his  accounts  with  the  drawer  and  ascertain  their 
condition. 


78o 


FORMS 


Form  44.     (a)  Trade  Acceptance 


No.  286  New  York,  January  7,  1920 

At  ninety  days  after  sight ; pay  to  the  order  of 

ourselves    $37400 

Three  Hundred  Seventy-Four  and  00/100 Dollars 

Value  received,  and  charge  the  same  to  account  of 

Henderson  &  McKenzu 
To  James  Graham  &  Son, 

Cleveland,  Ohio 


Form  44.     (b)  Trade  Acceptance — ^Indorsement 

Accepted 

Oeveland,  Ohio,  February  11,  1920 

Due  April  3,  1920 

James  Graham  &  Son 


) 


ss.: 


Form  45.    Certificate  of  Protest 

United  States  of  America 
State  of  New  York 

Be  it  Known,  That  on  the day  of in  the  year 

of  our  Lord,  One  Thousand  Nine  Hundred  and at  the  request 

of   ,  I,   ,  Notary  Public  duly 

commissioned  and  sworn,  dwelling  in  the  City  of Coun^ 

of ,  and  State  aforesaid,  did  present  the  original 

of  for  Dollars,  hereunto  an- 
nexed.* *at 'the ........where  the  same 

is  payable,  and  demanded  payment  which  was  refused. 

Whereupon,  I,  the  said  Notary,  at  the  request  aforesaid,  did  protest, 
and  by  these  presents  do  publicly  and  solemnly  protest,  as  well  against 

the  maker  and  indorser  of  the  said as  against  all  others 

whom  it  doth  or  may  concern,  for  exchange  or  re-exchange  and  all  costs, 
charges,  damages,  and  interest,  already  incurred,  and  to  be  incurred  for 
want  of  payment  of  the  same. 

And  I,  the  said  Notary,  do  hereby  certify,  that  on  the  same  day 
and  year  above  written,  due  notices  of  the  foregoing  Protest  were  put 
into  the  Post  Ofl&ce  at  Ithaca,  postage  paid,  or  served  as  follows: 

Notice directed 


M 


Each  of  the  above-named  places  being  the  reputed  place  of  residence 
of  the  person  to  whom  the  notice  was  directed. 

In  Witness  Whereof,  I  have  hereunto  subscribed  my  name  and 
affixed  my  Seal  of  Office. 


f  notary's  "1 
\      seal      / 


Notary  Public 


CHAPTER  CIV 

FORMS  OF  EMPLOYMENT  CONTRACTS 

Form  46.    Contract  of  Employment— Simple  Form 

Agreement 


It  is  aereed  that  Tames  Robinson  is  employed  by  Mark  &  Warren, 
c-.fi  Fulton  St  Brooklyn,  New  York,  as  store  salesman,  his  term  to  begin 
5iS  Febriar^T^^^^^  and  his  silary  to  be  Twenty-five  Dollars  ($25) 
i^r  week  His  duSes  are  to  act  as  salesman  m  the  store  of  said  firm 
Snd  to  do  anything  else  required  in  the  conduct  of  its  busmess. 

Brooklyn.  N.  Y.,  Mark  &  Warren 

January  29,  1920  James  Robinson 


Form  47.    Contract  of  Employment 

Agreement 


Bv  this  agreement  made  between  Blake  &  Hardiman  and  Arthur 
Parlanan  the  said  firm  hire  and  employ  Arthur  Parlmian  to  assist  them 
as  an  accountant  in  their  business  in  Cleveland,  Ohio,  beginning  February 
2  1Q2S  and  they  agree  to  pay  him  for  his  services  the  sum  of  One 
Hundred  Dollars  ($Ioo)  per  month,  payable  at  the  end  of  each  calendar 

™°"Arthur  Parkman  agrees  and  undertakes  that  he  will  devote  his  entire 
time  and  attentl^  to  ?he  work  during  the  period  of  his  employment  with 

^^^  u"?s  agreed  between  the  parties  hereto  that  either  party  may  terminate 
this  aVreement  by  giving  notice  to  the  other  party  thirty  days  before  the 
Ixpira^i^n  of  any  month  in  which  it  is  desired  to  termmate  the  arrange- 

™*"The  parties  have  hereunto  signed  their  names  in  Cleveland,  Ohic, 
January  16,  1920.  ^^^^  ^  Hardiman 

Arthur  Parkman 


The  two  preceding  contracts  are  informal  and  are  written 
in  ordinary  business  English.    Their  purpose  is  to  show  how 

781 


M 


782 


FORMS 


simple  a  matter  it  is  to  put  the  essentials  of  a  contract  in  a 
brief  written  memorandum. 

Form  48.    Contrmct  of  Employment  by  Letten 

HowABD  Desk  Company 
85  Stone  St,  New  York 


January  IS  I9»> 
Ml.  Wnxis  H.  Walters, 

225  Broadway,  New  York. 

Beam  Sii:~ 

I  am  instructed  by  the  Board  of  Directors  to  tender  you  the  position 
of  Sales  Manager  of  this  Company  at  a  salary  of  $1,800  per  annum, 
payable  in  monthly  instalments  of  $150  each,  your  employment  and  duties 
to  begin  in  case  of  your  acceptance,  on  the  2d  day  of  February,  1920. 
Your  early  action  in  the  matter  will  greatly  oblige, 

Yours  very  truly, 

Sheswin  F.  Hamilton, 

Acceptance 


■  *  '  New  York  City, 

„  ^      ^  January  17,  1920 

HowAiD  Desk  Company, 
25  Stone  Street, 
New  York  City 

Gentlemen  :— 

Your  letter  of  January  15,  1920,  offering  the  position  of  Sales 
Manager  at  a  salary  of  $1,800  per  annum,  is  hereby  accepted.  I  shall 
close  up  my  present  engagements  and  be  ready  to  begin  February  2,  192a 

Yours  sincerely, 

WiLus  H.  Walters 


FORMS  OF  EMPLOYMENT  CONTRACTS 


783 


X  In  addition  to  said  annual  salary,  the  said  Comstock  shall  receive 
«  compensS  for  his  services,  an  amount  equal  to  ten  Per  centum  of 
Se  "ofifs  of  the  said  business,  to  be  due  fd  payable  within  ten  days 
after  each  semiannual  inventory  and  statement  of  the  firm. 
*"  4.  The  ^d  Comstock  shall  have  no  authority  in  the  busmess  outside 
of  the  sales  department;  he  shall  have  no  interest  m  the  firm  capital  and 
pLperty ;  he  s^^^^^^^^  no  interest  in  the  profits  save  as  a  measure  to  his 
comoensation;  he  shall  have  no  right  to  an  accounting  and  shall  in  no 
Xr  respect;  than  as  herein  set  forth,  have  any  connection  with  the 
firm  or  its  business  ^^  ^^.^  arrangement 

wishes  to  discrUnue  it  ft  the  expiration  of  its  period,  and  not  to  renew 
k  for  the  like  period,  such  party  shall  give  the  other  party  formal  written 
noftce  not  lels  th^^^^^^  days  before  the  expiration  thereof ;  otherwise 
?hb  agreeme^^^^  be  held  to  be  renewed  for  a  like  period  upon  the 

same  te-s^-f^  con^^^^^^^^      ^^^  ^^^^^  ^^  ^^e  parties  the  day  and  year 
first  above  written.  ^^^^^^^^  ^^^^^  ^  ^^    ^^^^ 

Theodore  L.  Comstock  [l.s.]| 

Attest  both  signatures: 
James  E.  Hill 


Form  4g.    Contract  of  Employment  with  Share  in  Profits 

This  agreement  made  this  loth  day  of  February,  1920,  by  the  firm  of 
WBdns,  Lewis  &  Co.,  of  the  City  and  State  of  New  Yorl^  and  Theodore 
L.  Comstock,  of  Jersey  City,  New  Jersey,  Witnesseth : 
*  I.  The  said  Comstock  is  hereby  employed  by  said  firm  for  the  term 
of  one  year  from  March  i,  1920,  renewable  thereafter  on  like  terms  at 
the  pleasure  of  both  parties  hereto,  as  salesman  and  manager  of  its  sales 
department,  to  which  the  said  Comstock  is  to  give  his  entire  time  and 
attention. 

2.  The  said  Comstock  shall  receive  an  annual  salary  of  Fifteen 
Hundred  Dollars  ($1,500)  for  said  services,  payable  in  twelve  equal 
instalments,  at  the  end  of  each  month. 


PARTNERSHIP  FORMS 


78s 


Fonn  51.    Articles  of  Copartnership 


Articles  of  Copartnership 


1 


CHAPTER  CV 

PARTNERSHIP  FORMS 


Fonn  50.    Simple  Articles  of  Partnership 


Partnership  Agreement 


Edward  T.  Craven  and  Milton  Noble,  both  of  the  City  of  Rochester, 
New  York,  hereby  mutually  agree  to  become  partners  under  the  firm  name 
of  "Craven  &  Noble,"  to  conduct  the  trade  and  business  of  sign-painting 
in  the  said  City  for  the  period  of  two  years  from  date. 

The  said  Craven  invests  his  stock  of  painls,  brushes,  and  other 
material,  estimated  to  be  worth  Two  Hundred  Dollars  ($200),  and  the 
said  Noble  invests  Two  Hundred  Dollars  ($200)  in  cash. 

Both  partners  shall  give  their  entire  time  and  shall  share  losses  and 
gains  equally. 

All  amounts  earned  or  received  by  either  partner  for  work,  materials, 
or  an3rthing  pertaining  to  the  business,  shall  be  deposited  in  the  Guardian 
Trust  Company  of  Rochester  in  the  name  of  both  partners,  and  shall  be 
taken  out  as  needed  for  expenses  and  supplies,  only  by  check  signed  by 
both  partners,  and  an  equal  amount  shall  be  drawn  each  Monday  morning 
for  each  partner  for  personal  expenses,  but  a  balance  of  Two  Hundred 
Dollars  ($200)  shall  aways  be  kept  and  held. 

When  the  firm  shall  be  dissolved,  the  material  on  hand  shall  be 
divided  equally  and  all  debts  shall  be  paid  from  the  money  in  bank,  after 
which  the  balance  shall  be  divided  equally  between  the  partners. 
Witness  our  hands  and  seals  this  13th  day  of  March,  igaa 


Edward  T.  Craven 
Milton  Noble 


Attest: 

Mabx  Goiham 


rL.s.i 

[L.S.J 


An  acknowledgment  is  not  legally  necessary  to  a  partner- 
ship agreement  though  it  is  frequently  appended. 

784 


These  Articles  of  Copartnership  entered  into  on  this  20th  d^  of 
Mar?hiQ20  by  and  between  Edgar  H.  Bedell,  of  the  City  of  New  York, 
^rjohn^A.  SutU  of  the  City  of  Hartford,  Connecticut,  WITNESSETH: 

1.  The  firm  name  of  said  copartnership  shall  be 

"E.  H.  Bedell  &  Co."  . 

2.  The  offices  and  place  of  business  of  said  firm  shall  be  situated  in 
the  Citv   County,  and  State  of  New  York.  ,      ,      •  ^r 

T     The  purpose  of  said  firm  shall  be  to  conduct  the  busmess  of 

buying  and  selling  chocolate,  cocoa,  and  their  products  and  Preparations 
Duymg  dj  u  6  jj  ^^  ^^^  g^j^  Qf  Twelve  Thousand 

Doutrs   ($12^      of  which  the  said  Edgar  H    Bedell  shall  invest  the 

surn  of  Fou^  Thousand  Dollars  ($4,000)   and  the  said  John  A.  Sutton 

S  invest  the  sum  of  Eight  Thousand  Dollars  ($8000).    .      ^     .        . . 
shall  mvesttne  sum  g  ^^^.^^  ^.^^  ^^^  attention  to  the  said 

business  and^'hall  engage  in  no  other  business,  undertaking,  or  speculaUon 

'''''%l^:^i^S^i:n  ^l  sl'chTa^fof  his  time  and  attention  to  said 
business  afmay  be  necessary,  but  shall  not  be  required  to  give  up  his 

present  b-m^^^^^^^^^^  ^^^  ^he  parties  hereto  until  the  first  day  of 

January,  1924,  at  which  time  it  shall  terminate  unless  expressly  continued 
bv  written  agreement  for  a  further  period.  .  ^^«„„f  :„ 

^  7  Neither  partner  may  withdraw  from  the  business  an  amount  m 
excess  of  Two  Hundred  Dollars  ($200)  per  month,  and  all  amounts  so 
wItWrawn  shall  be  charged  against  the  individual  account  of  the  partner 

"'%"monys'of"t^  finn  shall  be  deposited  in  a  convenient  bank  in 
the  City  of  New  York,  subject  to  withdrawal  only  by  thyf eck  °f  A^^^ 
firm,  signed  with  the  firm  name  by  the  said  Edgar  H.  Bedell,  wno  snaii 
have  sole  charge  of  the  finances  of  the  firm.  ,    r  .v  „*««.o 

9  Books  of  account  shall  be  kept,  and  at  the  end  of  the  year  a  state- 
ment shaU  be  made  showing  the  net  profits  for  the  year  and  such  profits 
SiaU  be  divided  between  the  said  partners  as  follows:  forty  per  cent  of 
lakl  profits  to  the  said  Bedell  and  sixty  per  cent  of  the  said  profits  to 
the  said  Sutton  ^i.^^i^^ion  on  account  of  death,  expiration  of  the 

term  or  other  cause  the  parties  hereto  bind  themselves  that  the  partner- 
sfT' affairs  shall  ht  settled  under  the  direction  and  according  to  the 
l?atements  of  some  reputable  certified  public  accountant  of  the  City  of 

Hartford.  «•     j   i.  • 

In  Witness  Whereof,  the  parties  hereto  have  affixed  their  signa- 
tures and  seals  the  day  and  year  above  mentioned. 

Edgar  H.  Bedell  [l.s,] 
John  A.  Sutton  [l.s.1 

Attest: 

Morris  Kenwood 


786 


FORMS 


Form  52.    Sundry  Partnership  Clauses 


!l 


I.    Participation  in  Business 

(a)  Neither  partner  shall  during  the  continuance  of  this  partnership 
be  concerned  in  any  other  business  unless  with  the  written  consent  of  the 
other  party  hereto. 

(b)  It  is  understood  and  agreed  that  each  partner  shall  devote  his 
whole  time  to  the  business  of  this  partnership,  and  shall,  during  its  con- 
tinuance, engage  in  no  other  business,  nor  accept  any  office  or  trust  that 
may  interfere  with  his  attendance  at  its  place  of  business. 

(c)  The  said  Marvin  shall  give  his  entire  time  and  attention  to  the 
said  business,  and  shall  engage  in  no  other  business,  undertaking,  or 
speculation  during  its  continuance. 

(d)  The  said  Wilson  shall  give  to  the  said  business  such  time  and 
attention  as  may  be  necessary,  but  shall  be  at  liberty  to  continue  his 
present  business  of  fire  and  marine  insurance  and  to  give  it  proper 
attention. 


2.    Secset  and  Silent  Partners 

(a)  And  it  is  agreed  between  the  parties  hereto  that  the  said  Bowen 
shall  take  no  part  in  the  management  of  the  business,  and  that  he  shall 
not  be  held  out  as  a  partner,  and  that  his  connection  with  the  said  co- 
partnership shall  not  be  known  or  announced. 

(b)  It  is  further  agreed  that  the  said  Andrews  shall  allow  the  use 
of  his  name  in  the  firm  title  and  shall  be  entitled  to  share  in  the  profits 
and  shall  be  responsible  for  any  losses  incurred  in  the  conduct  of  the  firm 
business,  but  that  he  shall  take  no  part  in  the  management  thereof,  and 
shall  not  interfere  in  the  conduct  of  the  firm  business. 


3.    Against  Indorsement  or  Assumption  of  Liability 

(a)  No  note,  bill,  draft,  check,  or  other  obligation  of  the  firm  in 
excess  of  Fifty  Dollars  ($50)  shall  be  signed  or  indorsed  or  accepted  by 
either  partner  without  consultation  with  and  consent  of  the  other  partner 
thereto. 

(b)  Neither  partner  alone  shall  bind  the  firm  to  any  contract  or 
obligation  involving  a  liabiUty  in  excess  of  Five  Hundred  Dollars  ($500), 
but  every  such  contract  or  obligation  shall  require  the  signature  of  the 
firm  name  executed  by  both  partners. 

(c)  During  the  continuance  of  this  partnership,  neither  partner  shall 
ttecoine  surety  or  indorser,  or  otherwise  make  himself  liable  for  the  debt, 
default,  or  miscarriage  of  another. 

(d)  During  the  continuance  of  this  partnership,  no  partner  shall 
sign,  indorse,  or  guarantee  the  payment  of  any  commercial  paper  or  other 
instrument  or  make  himself  responsible   for  the  debt,  default,  or  mis- 

•  carriage  of  any  other  person,  firm,  or  corporation,  unless  with  the  written 
consent  of  the  other  partners  hereto. 


4.    Against  Speculation 

(a)  Neither  partner  shall  engage,  outside  of  the  firm  business,  in 
my  venture,  speculation,  or  business  operation  of  any  kind  involving 
possible  gain  or  loss. 


PARTNERSHIP  FORMS 


787 


(b)     During  the  continuance  of  this  partnership,  neither  partner  shall 
either  for  himself  or  for  the  firm,  engage  in  any  sale,  P^^^^^^ase   or  other 
operation,  either   directly  or   indirectly,   in  or  Rncernmg   stock,  bo^^^^^^ 
securities,  or  commodities  other  than  those  pertaining  to  the  firm  business 
herein  set  forth.  ^ 

^  larrfun  anTco?rect  record  of  the  firm  business  shall  be  kept  and 
each  partner  shall  at  all  times  have  access  to  the  books  and  records  of 

^^  ?bT  The  accounts  of  the  firm  shall  be  kept  by  double-entry  book- 
keep  ng  and  shall  be  balanced  at  the  end  of  each  month,  and  the  books 
and'^re^cords  shall  at  all  times  be  kept  in  the  office  of  the  firm  a^d^^^^^^^^ 
be  open  to  the  inspection  of  the  partners.  Each  partner  shall  t""iish  the 
b^oSer  with  a  full  record  of  all  his  transactions  on  behalf  of  th^^^ 

(c)     An  accounting  shall  be  had  at  the  close  ^^ .^^^^^  i?^°"^^^^^^ 
profits  or  losses  shown  shall  be  apportioned  and  paid  to  each  partner  as 

herein  elsev^^ere^prov^^^^^^^  may  be  to  the  first  day  of  Janua^  m^^^^^^^^ 

an  inventory  shall  be  taken,  the  books  shall  be  closf  a^^^^^ 
oreoared   showing  the  assets  and  liabilities,  and  the  losses  ana  gams  lui 
?h?oreceding  year     Any  gain  shown  shall  be  apportioned  as  herein  else- 
wL?e  diSed.  and  shalf  be  credited  to  the  accounts  of  the  partners 
entitled  thereto^  ^^^  ^^  ^^,  ^^^  ^^^,  iZ^Lu^tT^nl 

in  each  vear    an  inventory  shall  be  taken,  ten  per  cent  ,<iiscount  b«ng 
aHowed  for  depredation  6f  plant  and  stock  and  material  on  hand,  and 
such  iount  bei^g  deducted"^  from  bilU  and  a%"f4  Pf^^f  ^^^^^^ 
be  aereed  upon  by  all  the  partners.    Then  the  books  shall  be  elosea  ana 
a  balince%hee^r^^  After  deducting  all  rents,  ^^^^^^'^^ff^^^^^^^ 

missions,  and  expenses  of  conducting  the  business  ^"^^"^  "S„^'^l^"?u.^,i 
3  ewhere  provided  herein  for  the  partners  the  "et  surplus  profits  shaU 
be  equally  divided  among  the  partners,  and  a  copy  .of  the  balance  s^eet 
showing  such  closing  and  apportionment  ^^all  be  given  to  each^p^^^^^ 
who  shall  be  concluded  thereby,  unless  he  makes  written  objection  mereio 
within  thirty  days  after  the  receipt  thereof. 


6.    Employment  of  Assistants  ,   „  .  „„^j  ^-  ^jerVi^irffed  save 

(a)    No  clerk  or  other  employee  shall  be  engaged  or  discharged  save 

by  the  agreement  of  both  partners,  and  no  salary  f,  ^^f,g^^  P^i^,^''  ^"^ 
Snployee  shall  be  increased  save  by  the.agreement  of  both  partn^^^^^ 

^  (b)  No  person  shall  be  employed  in  the  firm  ^^^^^f  ,\^/Sers  of 
without  consultation  with  and  agreement  thereto  of  aU  the  membe^^^^^  01 
the  firm,  and  no  person  employed  by  the  firm  %hall  reco^ve  any  m^ase^^^ 
wages  without  the  agreement  of  all  members  of  the  fir^  and  no  ^P^oy^ 
shall  be  discharged  without  the  agreement  of  all  members  ot  tne  nrm 
except  in  case  of  gross  misconduct  or  insolence. 


If 


ill 


il 


CHAPTER  CVI 

CORPORATE  ORGANIZATION  FORMS' 


I* 


Ponn  53.    Subscriptioii  List 

Subscription  List 

PARKMAN  METAL  WORKING  COMPANY 

To  be  Incorporated  under  the  Laws  of  New  Jersey 

Capital  Stock $500,000 

Share? $100  each 


We,  the  undersigned,  hereby  severally  subscribe  at  the  par  value 
thereof  for  the  number  of  shares  of  the  Capital  Stock  of  the  Parkman 
Metal  Working  Company  set  opposite  our  respective  names,  and  agree  to 
pay  for  the  same  in  cash  on  demand  of  its  Treasurer  as  soon  as  said 
Company  is  organized. 

New  York  City,  March  i,  1920. 


Names 

Harry  H.  Burton 
William  McClellan 


Addresses 

20  Broad  St.,  New  York 
36  West  23rd  St.,  New  York 


Shares  Amount 
20  $2,000 


10 


1,000 


This  subscription  list  is  informal  but  will  be  found  suffi- 
cient where  the  purposes  and  conditions  of  the  subscription  are 
well  understood.  It  is  to  be  noted  that  subscriptions  under 
it — ^as  is  true  of  most  of  the  usual  forms  of  subscription  agree- 
ments— are  not  binding  until  the  company  has  been  incorpor- 
ated. Prior  thereto  they  are  merely  continuing  propositions 
to  a  corporation  which  is  not  yet  organized  and  is  therefore 
incapable  of  becoming  a  party  to  a  contract.  Hence  until  in- 
corporation such  subscriptions  may  be  revoked  at  the  will  of 
the  subscribers. 

« For  additional  corporate  forms,  sec  Forms  17,  29-33,  35-41. 

788 


CORPORATE  ORGANIZATION  FORMS 


789 


•a 


^         O 

§  o     <J 

o  «     ^ 
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Original 

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Orisinal 

Certificate 

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790 


FORMS 


CORPORATE  ORGANIZATION   FORMS 


791 


Any  certificate  which  clearly  indicates  the  stock  it  rep- 
resents and  the  ownership  of  this  stock,  is  legally  sufficient 
regardless  of  its  form  and  style.  As  a  matter  of  business, 
however,  and  of  good  taste  as  well,  a  neat  and  presentable 
certificate  is  always  to  be  preferred. 

It  is  customary  for  two  of  the  company  officials  to  sign 
stock  certificates;  also  for  the  corporate  seal  to  be  affixed. 
The  officers  to  sign  stock  certificates  are  usually  designated  by 
the  by-laws  of  the  corporation,  though  in  some  states  they  are 
prescribed  by  statute.  The  president  is  always  required  to 
be  one  of  the  signing  officials,  and  the  secretary  or  treasurer  is 
designated  as  the  other. 

The  words  "full-paid  and  non-assessable"  should  not  ap- 
pear upon  the  face  of  a  stock  certificate  unless  the  corporation 
has  been  paid  in  full  for  the  stock  represented  therein. 

Stock  certificates  are  numbered  consecutively  and  are  issued 
in  the  order  of  their  numbers,  as  a  matter  not  of  legal 
obligation  but  merely  of  convenience. 

The  certificates  for  preferred  stock  are  similar  to  those  for 
common  stock,  except  that  the  special  provisions  as  to  the 
privileges  enjoyed  by  the  holders  are  printed  in  full.  Usually 
when  a  corporation  issues  both  kinds  of  stock,  they  are  dis- 
tinguished by  having  the  class  printed  in  large  lettering  on  the 
certificates. 


Form  55.    Assignment  of  Stock  Certificate 

For  Value  Received,  (I)  hereby  sell  and  transfer  unto  (Martin  T. 
Marshall,  of  New  York  City,  Twenty-five)  Shares  of  the  Capital  Stock 
represented  by  the  within  Certificate,  and  do  hereby  irrevocably  constitute 
and  appoint  (Chester  A.  Slater)  my  Attorney  to  transfer  the  said  stock 
on  the  books  of  the  within-named  Company,  with  full  power  of  substit* 
tion  in  the  premises. 

(Elus  K.  Doyle) 

Dated,  (March  i,  1920) 
In  the  presence  of : 

(Charles  T.  Estabbook) 


Stock  is  transferred  by  assignment,  the  form  for  which  is 
printed  or  lithographed  upon  the  back  of  the  certificate.  This 
form  may  be  executed  in  the  partially  completed  condition 
known  as  an  assignment  in  blank,  and  may  then  pass  from 
hand  to  hand  without  further  formality. 

When  the  owner  of  a  certificate  assigned  in  blank  wishes 
to  become  the  owner  of  record  of  the  stock  it  represents,  he 
completes  the  assignment  by  the  insertion  of  his  own  name  as 
in  the  preceding  form.  He  may  or  may  not  fill  in  the  name 
of  his  attorney  at  his  discretion. 

Form  56.    Certificate  of  Incorporation — ^New  York 

Certificate  of  Incorporation 

of  the 

PIEDMONT  SCALE  COMPANY 


We,  the  undersigned,  all  being  of  full  age  and  two-thirds  being  citizens 
of  the  United  States  and  one  of  us  a  resident  of  the  State  of  New 
York,  for  the  purpose  of  forming  a  corporation  under  the  Business  Cor- 
porations Law  of  the  State  of  New  Yorl^  do  hereby  certify  and  set  forth : 

First — The  name  of  said  corporation  shall  be 


n 


"Piedmont  Scale  Company. 

Second — The  purposes  for  which  said  corporation  is  to  be  formed  are 
as  follows: 

(a)  To  manufacture,  buy,  sell,  import,  export,  and  generally 
deal  in  and  with  scales,  weighing  machines,  and  mechanical  devices 
for  weighing,  measuring,  and  recording  the  weight  and  measure- 
ment of  all  kinds  of  goods,  and  merchandise, 

(b)  To  apply  for,  obtain,  purchase,  or  otherwise  acquire,  and  to 
register,  hold,  own,  use,  operate,  sell,  assign,  or  otherwise  dispose 
of  and  turn  to  account  and  profit,  any  and  all  trade-marks,  improve- 
ments, inventions,  tools,  apparatus,  mechanisms,  and  machinery,  use- 
ful or  necessary  in  the  operations  of  the  Company,  whether  secured 
under  letters  patent  of  the  United  States  or  of  any  foreign  country, 
or  held  or  secured  in  any  other  manner. 

(c)  To  take,  lease,  hire,  purchase,  manufacture,  or  otherwise 
acquire  and  own,  and  to  sell,  hire,  lease,  pledge,  mortgage,  and 
otherwise  deal  in  and  with  all  kinds  of  goods,  wares,  chattels, 
merchandise,  and  other  personal  property,  excepting  gold  and  silver 
bullion,  foreign  coins,  and  bills  of  exchange. 


792 


FORMS 


! 


1 1 


Third— The  amount  of  capital  stock  of  said  corporation  shall  be 
Five  Hundred  Thousand  Dollars  ($500,000).  ^     .     ,     . 

The  amount  of  capital  with  which  said  corporation  will  begin  busi- 
ness is  Five  Hundred  Dollars  ($500). 

Fourth — The  number  of  shares  of  which  said  capital  stock  is  to  con- 
sist shall  be  Five  Thousand  (5,000)  Shares  of  the  par  value  of  One 
Hundred  Dollars  ($100)  each. 

Fifth— The  principal  office  of  the  corporation  shall  be  in  the  Borough 
of  Manhattan  and  in  the  City,  County,  and  State  of  New  York. 

Sixth— The  duration  of  said  corporation  shall  be  perpetual. 

Seventh — The  number  of  directors  of  said  corporation  shall  be  three. 

Eighth— The  names  and  post-office  addresses  of  the  directors  for  the 
first  year  are  as  follows: 


Names 

Howard  Maxwell 
Howard  J.  McCall 
£dward  Blashfield 


Addresses 

5 JO  West  176th  Street,  New  York  City 
270  Broadway,  New  York  City 
30  Broad  Street,  New  York  City 


Ninth^The  names  and  post-office  addresses  of  the  subscribers  to  this 
certificate  and  the  number  of  shares  which  each  agrees  to  take  in  said 
corporation,  are  as  follows: 

Names                                   Addresses  Shares 

Howard  Maxwell  510  West  176th  Street,  New  York  City  460 

Howard  J.  McCall  270  Broadway,  New  York  City  SO 

Edward  Blashfield  30  Broad  Street,  New  York  City  flO 

Tenth — ^At  all  elections  of  directors  of  this  corporation,  each  stock- 
holder shall  be  entitled  to  as  many  votes  as  shall  equal  the  number  of  his 
shares  of  stock,  multiplied  by  the  number  of  directors  to  be  elected,  and 
he  may  cast  all  of  such  votes  for  a  single  director  or  may  distribute  them 
among  the  number  to  be  voted  for,  or  any  two  or  more  of  them,  as  he 
may  see  fit. 

In  Witness  Whereof,  we  have  made  and  signed  this  Certificate 
in  duplicate,  this  27th  day  of  April,  in  the  year  One  Thou- 
sand Nine  Hundred  and  Twenty. 

Howard  Maxwell 
Howard  J.  McCall 
Edward  Blashfield 


State  of  New  York 
County  of  New  York 


} 


ss» 


Personally  appeared  before  me  this  27th  day  of  April,  1920,  Howard 
Maxwell.  Howard  J.  McCall,  and  Edward  Blashfield,  to  me  personally 
known  to  be  the  persons  described  in  and  who  executed  the  foregoing 
certificate,  and  severally  acknowledged  that  they  executed  the  same  for 
the  purposes  therein  set  forth. 

Oscar  Jacobs, 
/  NOTARIAL  \  Notary  Public,  Suffolk  County,  N.  Y. 

\       seal      J  Certificate  filed  in  New  York  County. 


CORPORATE  ORGANIZATION  FORMS 

Fonn  57.    By-Laws — Simple  Form 

By-Laws 

of  the 

NEW  YORK  CONSTRUCTION  COMPANY 

New  York  City 


793 


Article  I— Stock 

1.  Certificates  of  Stock  shall  be  issued  to  each  holder  of  full-paid 
stock,  in  form  approved  by  the  Board  of  Directors;  shall  be  numbered 
consecutively;  be  issued  in  numerical  order  from  the  stock  certificate 
book;  be  signed  by  the  President  and  Secretary,  and  be  sealed  with  the 
corporate  seal.    A  record  of  each  certificate  issued  shall  be  kept  on  the 

stub  thereof.  ,         ,  ,      ,      ,        r  .. 

2.  Transfers  of  Stock  shall  be  made  only  upon  the  books  ot  the 
Company,  and  before  a  new  certificate  is  issued,  the  old  certificate  properly 
indorsed,  shall  be  surrendered.  Surrendered  certificates  shall  be  can- 
celled and  be  attached  to  their  proper  stubs  in  the  stock  certificate  book. 
The  stock  books  of  the  Company  shall  be  closed  to  transfers  twenty  days 
before  general  elections  and  ten  days  before  dividend  days. 

3.  The  Treasury  Stock  of  the  Company  shall  include  such  issued  and 
outstanding  stock  of  the  Company  as  may  be  acquired  by  purchase,  dona- 
tion or  otherwise  and  shall  be  held  subject  to  disposal  by  the  Board  of 
Directors.  Such  stock  shall  neither  vote  nor  participate  in  dividends  while 
held  by  the  Company. 

Article  II— Stockholders 

1.  The  Annual  Meeting  of  the  stockholders  of  the  Company  shall 
be  held  in  the  principal  office  of  the  Company  in  New  York  City,  at  10 
o'clock  A.M.  on  the  third  Monday  of  January  of  each  year— if  not  a  legal 
holiday;  but  if  a  legal  holiday,  then  on  the  next  business  day  succeeding 

for  the  purpose  of  electing  directors  and  the  transaction  of  such  other 

business  as  may  be  brought  before  the  meeting. 

2.  Special  Meetings  of  the  stockholders  shall  be  held  at  the  principal 
office  of  the  Company  and  may  be  called  by  the  President  at  his  discretion 
and  must  be  called  by  him  when  so  directed  by  resolution  of  the  Board 
of  Directors,  or  when  requested  thereto  in  writing  by  stockholders  holding 
one-third  of  the  outstanding  stock. 

3.  Notice  of  Meetings,  written  or  printed,  for  every  annual  or  special 
meeting  of  the  stockholders  shall  be  prepared  and  mailed  to  the  post- 
office  address  of  each  stockholder  as  shown  by  the  stock  books  of  the 
Company  not  less  than  ten  days  before  such  meeting,  and  if  for  a  special 
meeting  such  notice  shall  state  the  object  or  objects  thereof,  and  no  other 
business  shall  be  transacted  at  any  such  special  meeting  save  that  so 
notified.  No  failure  or  irregularity  of  notice  of  any  regular  meeting  shall 
invalidate  such  meeting  or  any  proceeding  thereat. 

4.  A  Quorum  at  any  meeting  of  the  stockholders,  save  as  otherwise 
prescribed  by  statute,  shall  consist  of  a  majority  of  the  voting  stock  of 
the  Company  represented  in  person  or  by  written  proxy.    A  majority  of 


794 


FORMS 


CORPORATE  ORGANIZATION   FORMS 


795 


I 


such  quorum  shall  be  necessary  to  decide  any  question  coming  before  the 
meeting. 

5.  The  Election  of  Directors  shall  be  held  at  the  annua!  meeting  of 
stockholders,  and  shall  be  by  ballot  conducted  by  two  inspectors  of  elec- 
tion appointed,  after  the  first  election,  by  the  President. 

6.  The  Presiding  Officer  at  meetings  of  stockholders  shall  be  the 
President,  or  in  his  absence  or  disability,  the  Vice-President.  In  the 
absence  or  disability  of  both  of  these  officers,  a  Chairman  shall  be  chosen 
by  the  stockholders  present  and  shall  preside  at  such  meeting. 

7.  The  Order  of  Business  at  the  annual  meeting  and  as  far  as  pos- 
sible at  all  other  meetings  of  the  stockholders,  shall  be : 


I. 

2. 

6. 


Calhng  of  Roll 

Proof  of  Due  Notice  of  Meeting 

Reading  and  Disposal  of  Any  Unapproved  Minutes 

Annual  Reports  of  Officers  and  Committees 

Election  of  Directors 

Unfinished  Business 

New  Business     ' 

Adjournment 

AlTICLE  III— DllECTORS 


1.  The  Business  and  Property  of  the  Company  shall  be  managed  by 
a  Board  of  three  (3)  Directors,  who  shall  be  stockholders  and  who  shall 
be  elected  annually  by  ballot  by  the  stockholders  for  the  term  of  one  year, 
and  shall  serve  until  the  election  and  acceptance  of  their  duly  qualified 
successors.  Any  vacancy  in  the  Board  may  be  filled  by  the  remaining 
members  of  the  Board  for  the  unexpired  term.  Directors  shall  receive 
no  compensation  for  their  services  as  such. 

2.  The  Regular  Meetings  of  the  Board  of  Directors  shall  be  held  in 
the  principal  office  of  the  Company  in  New  York  City  at  3  p.m.  on  the 
third  Tuesday  of  each  month  if  not  a  legal  holiday ;  but  if  a  legal  holiday, 
then  on  the  next  succeeding  business  day. 

3.  Special  Meetings  of  the  Board  of  Directors,  to  be  held  in  the 
principal  office  of  the  Company  in  New  York  City,  may  be  called  at  any 
time  by  the  President  or  by  any  three  members  of  the  Board,  or  may  be 
held  at  any  time  and  place  without  notice  and  for  the  transaction  of  any 
business,  by  unanimous  written  consent  of  all  the  members,  or  by  the 
presence  and  participation  of  all  the  members  at  such  meeting. 

4.  Notices  of  both  regular  and  special  meetings  shall  be  mailed  by 
the  Secretary  to  each  member  of  the  Board  not  less  than  five  days  before 
any  such  meeting,  and  notices  of  special  meetings  shall  state  the  purposes 
thereof,  and  no  other  business  shall  be  transacted  at  a  special  meeting 
save  as  so  notified  unless  by  unanimous  consent  of  all  the  members.  No 
failure  or  irregularity  of  notice  of  any  regular  meeting  shall  invahdate 
such  meeting  or  proceeding  thereat. 

5.  A  Quorum  at  any  meeting  shall  consist  of  a  majority  of  the 
entire  membership  of  the  Board.  A  majority  of  such  quorum  shall  be 
necessary  to  decide  any  question  that  may  come  before  the  meeting.  If  a 
quorum  is  not  present  at  any  duly  assembled  meeting,  a  majority  of  those 
present  may  adjourn  the  meeting  from  day  to  day  but  may  transact  no 
other  business  until  a  quorum  is  secured. 

6.  Voting.  Each  member  of  the  Board  present  in  person  at  any 
meeting  shall  have  one  vote  upon  all  matters  voted  upon  at  such  meeting. 


7.  The  Presiding  Officer  at  meetings  of  the  Directors  shall  be  the 
President,  or  in  his  absence  or  disability,  the  Vice-President. 

8  Officers  of  the  Company  shall  be  elected  by  the  Board  of  Directors 
at  their  first  meeting  after  the  election  of  Directors  each  year.  Jf  -"V 
office  becomes  vacant  during  the  year,  the  Board  of  Directors  shall  fall 
the  same  for  the  unexpired  term.  The  Board  of  Directors  shall  fax  the 
compensation  of  the  officers  and  agents  of  the  Company.  An  officer  may 
be  removed  at  any  time  by  a  two-thirds  vote  of  the  entire  membership  ot 

the  Board.  .  •  1         *• 

9.     The  Order  of  Business  at  any  regular  meeting  or  special  meeting 

of  the  Board  of  Directors  shall  be : 


I. 
0. 
3- 


Reading  and  Disposal  of  Any  Unapproved  Minutes 

Reports  of  Officers  and  Committees 

Unfinished  Business 

New  Business 

Adjournment 

Article  IV— Officers 


I  The  Officers  of  the  Company  shall  be  a  President,  who  shall  be 
elected  from  among  the  Directors,  a  Vice-President,  a  Secretary  and  a 
Treasurer  all  of  whom  shall  be  elected  for  one  year  and  shall  hold  oftice 
until  their  successors  are  elected  and  qualify.  The  positions  of  Secretary 
and  Treasurer  may  be  united  in  one  person. 

2.  The  President  shall  preside  at  meetings  of  stockholders  and  ot 
Directors-  shall  have  general  supervision  of  the  affairs  of  the  Company; 
shall  sign' or  countersign  all  certificates,  contracts,  and  other  instruments 
of  the  Company  as  authorized  by  the  Board  of  Directors;  shall  make 
reports  to  the  Directors  and  stockholders,  and  perform  all  such  other 
duties  as  are  incident  to  his  office  or  are  properly  required  of  him  by  the 
Board  of  Directors.  In  the  absence  or  disability  of  the  President,  the 
Vice-President  shall  exercise  all  his  functions.  .  .     ,  , 

3  The  Secretary  shall  issue  notices  for  all  meetings  of  both  stock- 
holders and  Directors;  shall  keep  their  minutes;  shall  have  charge  of  the 
seal  and  the  corporate  stock  books;  shall  sign  with  the  President  all 
instruments  requiring  such  signature;  and  shall  make  such  reports  and 
perform  such  other  duties  as  are  incident  to  his  office  or  are  properly 
required  of  him  by  the  Board  of  Directors. 

4.  The  Treasurer  shall  have  the  custody  of  all  moneys  and  securities 
of  the  Company  and  shall  keep  regular  books  of  account  and  balance 
the  same  each  month.  He  shall  sign  or  countersign  such  instruments  as 
require  his  signature ;  shall  perform  all  duties  incident  to  his  office  or  that 
are  properly  required  of  him  by  the  Board;  and  shall  give  bond  for  the 
faithful  performance  of  his  duties  in  such  sum  and  with  such  sureties  as 
may  be  required  by  the  Board  of  Directors. 

Article  V— Dividends  and  Finance 

1.  Dividends  shall  be  declared  only  from  surplus  profits  at  such  times 
as  the  Board  of  Directors  shall  direct,  and  no  dividend  shall  be  declared 
that  will  impair  the  capital  of  the  Company.  .     ,  .      ,  r 

2.  The  Moneys  of  the  Company  shall  be  deposited  in  the  name  of 
the  Company  in  such  bank  or  trust  company  as  the  Board  of  Directors 
shall  designate,  and  shall  be  drawn  out  only  by  check  signed  by  the 
Treasurer  and  countersigned  by  the  President. 


10 


FORMS 


AiTicLE  VI— Seal 

I.  The  Corporate  Seal  of  the  Company  shall  consist  of  two  con- 
centric circles,  between  which  appears  the  name  of  the  Company,  and  in 
the  centre  shall  be  inscribed  "Incorporated  1920,  New  York,"  and  such 
seal,  as  impressed  on  the  margin  hereof,  is  hereby  adopted  as  the  Cor- 
ix>rate  Seal  of  the  Company. 

AiriCLE  VII— Amendments 

I.  These  By-Laws  may  be  amended,  repealed,  or  altered,  in  whole  or 
in  part,  1^  a  majority  vote  of  the  entire  outstanding  stock  of  the  Com- 
pany, at  any  regular  meeting  of  the  stockholders,  or  at  any  special  meeting 
where  such  action  has  been  announced  in  the  call  and  notice  of  such 
meeting. 


As  the  general  corporate  mechanism  is  much  the  same  in 
all  corporations,  there  is  a  general  resemblance  between  their 
by-laws.  The  details  of  these  by-laws  should,  however,  in 
each  case  be  adapted  to  the  special  requirements  of  the  cor- 
poration for  which  they  are  prepared.  (See  Chapter  LI, 
"By-Laws.") 

The  set  of  by-laws  given  above,  though  particularly  in- 
tended to  illustrate  the  references  of  the  present  volume  to  the 
by-laws,  has  been  proved  by  long  experience  to  supply  excel- 
lent material  from  which  to  construct  the  by-laws  of  any  par- 
ticular  corporatioa' 


>A  more  extended  set  of  by-laws  suitable  for  the   larver  corporationa  may  be 
fmiiifl  ia  the  author's  work,  ^'Corporate  Organization  and  Management'' 


CHAPTER  CVII 

FORMS  FOR  CORPORATE  MEETINGS 

Form  58.    Call  and  Waiver  for  Special  Meeting  of  Directors 

Call  and  Waiver 
Special  Meeting  of  Directors 


We  the  undersigned,  all  the  Directors  of  the  Long  Island  Power 
Comoanv  of  Flushing,  Long  Island,  do  hereby  call  a  special  meeting  of 
^  Board  of  Director  of  slid  Company  to  be  held  in  its  office  at  No.  285 
Duane  St  New  York  City,  at  4  o'clock  p.m.  on  this  22nd  day  of  January, 
fcS  for 'the  purpose  of  acting  upon  a  proposition  ^or  the  sale  of  the 
C^'oany's  Flushing  plant,  and  we  do  hereby  waive  all  statutory  and 
bvTaw  r^uir^entl  as  to  notice  of  time,  place,  and  purposes  of  said 
Sj^e?hlg, Td^nsen^  to  the  transaction  thereat  of  any  and  all  busmess 
pertaining  to  the  affairs  of  the  Company. 

New  York  City,  N.  Y..  John  McFerguson 

January  22.  1920  Harold  H.  Harding 

J  «*!*««  J  7f  Benton  Creller 

Howard  H.  Maurice 
Horace  Evans 


Special  meetings  of  directors  are  usually  assembled  by 
means  of  call  and  waiver,  except  where  the  board  is  large 
or  some  of  its  members  are  inaccessible. 

Fonn  59.    Agreement  to  Consent  Meeting  of  Directoni 

HARRISON  CUTLERY  COMPANY 
Waiver  of  Notice 


We  the  undersigned,  all  the  Directors  of  the  Harrison  Cutlery  Com- 
oanv&ing  now  present  do  hereby  consent  to  an  immediate  meeting  of 
th?  Board  of  Directors  of  said  Company  to  be  held  in  the  office  of  Henry 
H  McCall.  No!  253  Broadway,  New  York,  at  3  o'clock  p.m.  this  i6th  day 

797 


798 


FORMS 


of  February,  1920,  and  wc  hereby  waive  all  requirements  as  to  notice  of 
time,  place,  ana  purposes  of  such  meeting,  and  agree  to  the  transaction 
thereat  of  any  and  sdl  business  pertaining  to  the  affairs  of  the  Company. 

Henry  H.  McCall 
Simon  Frankenstein 
James  J.  McCall 
Howard  H.  Frenkel 
Stanley  T.  Brown 


For  such  meetings  a  written  validation  is  not  strictly  neces- 
sary. The  participation  of  all  the  parties  entitled  to  be  present, 
duly  entered  on  the  minutes  of  the  meeting,  affords  legal 
evidence  of  their  consent  thereto  and  estops  any  subsequent 
objections  on  their  part  to  the  proceedings.  As  a  precautionary 
measure,  however,  the  secretary  should  have  every  member 
of  the  board  sign  the  minutes. of  a  consent  meeting,  or  other- 
wise sign  a  waiver  of  notice  and  agreement  to  the  meeting 
as  given  above. 


Fomi  60.    Notice  of  Special  Meeting  of  Directors 


HYDRO-CARBON  STEEL  COMPANY 
134  West  23rd  St.,  New  York  City 


March  15,  1920 
Ml.  Walth  H.  Sinclair, 

Montclair,  New  Jersey. 
Deas  Sn:— 

You  are  hereby  notified  that  pursuant  to  call  of  the  President,  a 
special  meeting  of  the  Board  of  Directors  of  this  Company  will  be  held 
in  its  office  at  3  o'clock  p.m.  on  the  i8th  day  of  March,  1920,  to  act  upon 
m  proposition  to  purchase  the  plant  of  the  Scranton  Foundry  Company 
and  to  transact  such  other  business  in  connection  therewith  as  may  be 
necessary  or  desirable. 

Respectfully  yours, 

Milton  H.  Sanderson, 

Secretary 


This  notice  must  be  sent  to  every  member  of  the  board. 
The  time,  place,  and  purpose  of  the  meeting  must  be  stated, 
and,  unless  every  member  of  the  board  is  present  and  agrees 


FORMS  FOR  CORPORATE   MEETINGS 


799 


thereto,  no  business  may  be  transacted  at  the  meeting  save 

that  so  specified.  ,       ,.      .  ^A  u^ 

Notice  of  a  regular  meeting  of  the  directors  would  be 

similar  to  the  notice  of  a  special  meeting,  but  would  usually 

merely  state  the  time  and  the  place  of  meeting,  omittmg  pur- 

poses.  .  J  •     „e 

It  is  but  rarely  that  publication  notices  are  used  in  as- 
sembling directors'  meetings.  The  foregoing  notice  might  be 
readily  modified,  if  desired,  to  serve  as  a  publication  noUce. 

Form  61-    Minutes  of  Special  Meeting  of  Stockholders 

MIDVALE  FOUNDRY  COMPANY 

OF 

New  Jersey 


Minutes  of  Special  Meeting  of  Stockhou)EHS 
Held  January  19,  1920 


Till,  citockholdcrs  of  the  Midvale  Foundry  Company  assembled  in 
•1        :?w^n  the  office  of  the  Company  at  Midvale.  New  Jersey,  at 

dent  of  the  O^mpany;  the  Secretary  of  the  Company.  Mr.  W.  A.  Thomp- 

'^^^afem^nrTl'^ecial  business  should  follow  with  record  of  action 
'"^'There  being  no  further  business,  the  President  declared  the  meeting 
adjourned.  --„,-.„  W.  A.  Thompson, 

FREDEWCK  H.    COI^A^^^^^^       S,,,,,^^ 

Call  and  Notice  of  meeting  appended  hereto  in  accordance  with  the 
requirements  of  the  foregoing  minutes.  ^  ^   Thompsok, 

Secretary 


Boo 


FORMS 


The  general  form  in  which  minutes  are  kept  is  a  matter  of 
custom.  The  details  are  determined  by  the  secretary  of  the 
particular  company.  The  headings  should,  however,  always 
be  sufficiently  full  and  explicit  to  show  at  a  glance  whether  the 
meeting  is  of  stockholders  or  directors  and  whether  it  is  a 
regular,  special,  or  adjourned  meeting. 

The  name  of  the  corporation  is  frequently  brought  in  at 
the  head  of  every  set  of  minutes.  When  this  is  not  done  the 
minute  book  should  itself  be  very  plainly  stamped  or  marked 
with  the  name  of  the  company,  which  should  also  appear  on 
the  title  page  of  the  book  and  again  at  the  top  of  the  first 
written  page  of  minutes, 

Fonii  6a.    Minutes  of  Regular  Meeting  of  Directon 

FAIRFIELD  CEMENT  COMPANY 

or 
New  York 


M 


II 


Minutes  of  Regular  Meeting  of  Directors 
Held  February  7,  1920 


The  Board  of  Directors  of  the  Fairfield  Cement  Company  of  New 
York  met  in  regular  meeting  pursuant  to  due  call  and  waiver,  in  the  office 
of  the  Company  at  Fairfield,  New  York,  at  3  o'clock  in  the  afternoon  on 
the  7th  day  of  February,  1920. 

The  meeting  was  called  to  order  and  presided  over  by  Mr.  William 
A.  Pierce,  President.  The  Secretary  of  the  Company,  Mr.  Morris  H. 
Goodrich,  recorded  the  proceedings  of  the  meeting. 

There  were  present  Messrs.  William  A.  Pierce,  John  H.  Pickering, 
Walter  S.  Laighton,  John  K.  Bates,  Fred  N.  Barney,  Silas  H.  Harvey,  and 
Morris  H.  Goodrich,  constituting  a  quorum  of  the  Board. 

The  Secretary  read  the  minutes  of  the  last  regular  meeting  and,  no 
objection  being  made,  they  were  ordered  to  stand  approved. 

(The  regular  order  of  business  then  follows,  and  record  of  action 
mnder  each  head.) 

There  being  no  further  business  before  the  meeting,  it  was  declared 
adjourned. 


William  A.  Pierce, 

Presideni 


Morris  H.  Goodrich, 

Secretary 


FORMS   FOR  CORPORATE  MEETINGS 


801 


Form  63.    Motions 

I.    Motion  to  Receive  President's  Report  •  j    .u^  PrA«;H*.nf'ti 

On  motion  duly  seconded  and  unanimously  earned,  the  Fresments 

report  was  ordered  received  and  filed. 


2     Motion  Instructing  Secretary  to  Cast  Vote  ^  a  u.. 

There  being  no  other  nominations,  the  Secretary  was  mstructed  by 
motion  unanimously  carried,  to  cast  the  single  ballot  of  the  meeting  for 
the  five  candidares  for  Directors  already  named. 


3- 


Motion  to  Amend  By-Laws  r  a  *•  1     ti  «f  tv,^  Rv 

By  motion  unanimously  carried    Section  i  of  Article  "  o/^  th«  ^y 
Laws  was  amended  by  changing  the  hour  for  the  assembling  of  the  annual 
meeUng  of  the  Company  from  12  o'clock  noon  to  3  o  clock  p.m. 


4. 


Motion  to  Appoint  an  Investigating  Committee 
Moved    that  the  President  be  authorized  and  directed  to  appoint  a 
committee  consisting  of  three  Directors  of^his  Company   to  inves^^^^^^^ 
the  books  and  accounts  of  the  Treasurer  for  the  past  three  yeajs  Jich 
committee  to  have  full  access  to  the  Company's  financial  record^^^^^^^ 
have  authority  to  employ  a  certified  public  acountant  to  conduct  the  tech- 
nical work  necessary. 

The  forms  given  above  show  motions  as  they  appear  in  the 
secretary's  minutes.  The  forms  are  the  same  for  either  stock- 
holders' or  directors'  minutes. 

An  amendment  to  the  by-laws  is  usually  effected  by  a 
formal  resolution.  In  example  above,  as  the  amendment  was 
of  a  minor  matter,  it  is  entered  in  the  form  of  a  motion. 

A  formal  motion  in  writing  should  appear  on  the  minutes 
in  the  exact  form  submitted,  and  should  be  introduced  by  an 
explanatory  statement,  as:  "The  following  motion  offered  by 
Mr.  Wilson  was  duly  seconded  and  carried  b^  unanimous 
vote." 


Form  64.    Directors'  Resolutions 

I     Resolution  to  Open  Bank  Account  ,     •    j       j  • 

^^LVED    That  the  Treasurer  be  and  hereby  is  authorized  and  in- 
strucuftJ^pen  an  account  for  the  Company  with  the  Seaboard  National 


/. 


802 


FORMS 


Bank  of  New  York  City,  and  to  deposit  therein  all  funds  of  the  Company 
coming  into  his  possession,  such  account  to  be  in  the  name  of  the  Company 
and  funds  deposited  therein  to  be  withdrawn  only  by  check  signed  by  the 
Treasurer  and  countersigned  by  the  President 


2.    Resolution  Authorizing  Issue  of  Stock 

Resolved,  That  the  President  and  the  Treasurer  be  and  hereby  arc 
authorized  and  directed  to  issue  certificates  of  the  full-paid  Capital  Stock 
of  this  Company  to  the  aggregate  amount  of  Ten  Thousand  Dollars 
($10,000),  and  to  deliver  the  same  to  the  written  order  of  Robert  H. 
Stuart,  Fiscal  Agent  for  the  Company,  against  payment  into  the  treasury 
of  the  Company  of  the  full  par  value  thereof. 


3.    Resolution  Authorizing  Contract 

Resolved,  That  the  President  and  Secretary  be  and  hereby  are  author- 
ized and  instructed  to  enter  into  a  contract  with  the  Wilbur  Collins  Con- 
struction Company  on  behalf  of  this  corporation,  for  the  erection  of  a 
power-house,  the  construction  of  said  power-house  to  be  in  accordance 
with  the  plans  and  specifications  on  file  in  the  office  of  this  corporation 
and  the  cost  thereof  not  to  exceed  Twenty- Five  Thousand  Dollars 
($25,000),  payment  thereof  to  be  made  as  set  forth  in  the  written  proposi- 
tion heretofore  submitted  to  this  corporation  by  the  said  Wilbur  Collins 
O>nstruction  Company. 


4.    Resolution  Declaring  DiyiDENii 

Resolved,  That  the  sum  of  Ten  Thousand  Dollars  ($10,000)  be  and 
hereby  is  appropriated  and  set  aside  from  the  surplus  profits  of  this 
Company  for  the  payment  of  the  regular  Two  Per  Cent  (2%)  quarterly 
diviaend  upon  its  outstanding  stock,  said  dividend  to  be  due  and  payable 
on  the  20th  day  of  January  1920^  to  stockholders  of  record  as  shown  by 
the  books  of  the  Company  at  the  close  of  business  on  the  15th  day  of 
January,  192a 

Resolved  Further,  That  the  Treasurer  of  this  Company  be  hereby 
authorized  and  instructed  to  give  due  notice  of  such  diviaend  and  to  pay 
the  same  when  due. 


Fonn  65.    Certified  Resolutton  Designating  Bank 


(For  Resolution  see  Form  64.) 


I,  Sherman  H.  Rogers,  Secretary  of  the  AlKs  Drug  Company,  d« 
herel^  certify  that  the  foregoing  is  a  full  and  true  transcript  of  a  resolu- 
tion auly  adopted  at  a  regular  meeting  of  the  Board  of  Directors  of  the 
said  Company  held  in  the  City  of  New  York  on  the  loth  day  of  February, 
1920,  as  it  appears  on  the  minutes  of  said  meeting,  and  I  do  further  certify 


FORMS  FOR  CORPORATE  MEETINGS 


803 


that  Charles  Allis  is  the  duly  elected  President  of  said  Company,  and 

Jasper  T.  Huntington  is  its  duly  elected  Treasurer. 

In  Witness  Whereof,  I  have  hereunto  affixed  my  official  signa- 
ture and  the  corporate  seal  of  said  Company,  this  26th  day 
of  February,  1920. 


{ 


corporate 

SEAL 


} 


Sherman  H.  Rogers, 

Secretary 


In  this  form  of  certified  resolution  the  resolution  appears 
on  the  upper  part  of  the  sheet  followed  by  the  certification. 


II 


CHAPTER  CVIII 

MISCELLANEOUS  CORPORATE  FORMS 

Resignations  may  be  divided  into  two  general  classes: 
those  which  are  so  phrased  as  to  be  completely  effective  with- 
out an  acceptance,  which  may  be  termed  peremptory  resigna- 
tions, and  those  which  are  tentative  in  their  nature  and  there- 
fore not  effective  until  accepted. 

Form  66.    Resignation  of  Director — ^Tentative 

To  the  Board  of  Directors  of  the 

Howard  Scale  Company: 
Gentlemen  : — 

On  account  of  my  continued  ill  health,  which  prevents  my  proper 
attention  to  the  duties  of  the  position,  I  hereby  tender  my  resignation  as 
a  member  of  your  body. 

Very  respectfully, 

Henry  H.  Gale 
New  York  City, 
January  29,  1920 


If  a  resignation  of  this  latter  kind  is  accepted  without 
qualification,  its  effect  is  immediate,  and  the  resigning  director, 
though  present  at  the  meeting,  ceases  to  be  a  director  at  the 
moment  the  resolution  or  motion  of  acceptance  is  adopted.  A 
party  tendering  such  a  resignation  has  the  right  to  withdraw 
it  or  to  revoke  it  at  any  time  prior  to  its  acceptance. 

The  following  resignation  terminates  the  official  status  of 
the  party  signing  it  as  soon  as  the  document  is  filed  with  the 
secretary  of  the  company.  No  action  of  the  board  is  required, 
nor  can  the  board  in  any  way  prevent  its  effect. 

804 


MISCELLANEOUS  CORPORATE  FORMS 
Form  67.    Resignation  of  Director— Peremptory 


80s 


To  the  Board  of  Directors  of  the 

Franklin  Electric  Corporation: 
Gentlemen  : — 

I  hereby  resign  my  position  as  a  director  of  the  Franklin  Electric 
Corporation,  my  resignation  to  take  immediate  effect. 

Respectfully, 

..       „  .  ,         _  William  H.  Collins 

New  Brighton,  Pa., 
March  22^  1920 


A  committee  report,  unless  of  considerable  length,  is 
usually  presented  and  read.  If  too  long  to  permit  of  this, 
and  of  sufficient  importance  to  justify  the  expense,  it  is  printed 
for  distribution. 


Form  68.    Report  of  Committee  on  By-Laws 

TERREBONNE  CEMENT  COMPANY 
Report  of  Committee  on  By-Laws 


To  the  Stockholders  of  the 

Terrebonne  Cement  Company: 
Gentlemen  : — 

u  ij^°"/  committee  appointed  at  the  last  annual  meeting  of  the  stock- 
holders to  report  any  needed  modification  in  the  By-laws  of  this  Company 
begs  to  submit  the  following:  ^^ 

1.  We  would  recommend  the  addition  of  a  By-law  providing  for  an 
Executive  Committee,  to  consist  of  three  members  of  the  Board  of 
Directors,  such  Committee  to  have  full  control  of  the  general  business 
aitairs  ot  the  Company  in  the  interim  between  meetings  of  the  Board 

2.  We  would  recommend  that  the  present  By-law  relating  to  the 
regular  meetings  of  the  Board  of  Directors  be  so  changed  as  to  provide 
tor  quarterly  meetings  instead  of  monthly  meetings  as  at  present 

I  ^'  We  strongly  disapprove  of  the  suggested  amendment  to  the  By- 
laws whereby  the  amount  of  indebtedness  which  may  be  incurred  by  the 
t^^^'^l  T  ^^^""^^  °^  *^^  Company  at  any  one  time  is  increased  from 
Jio,ooo  to  $25,000,  as  we  believe  such  change  to  be  not  only  unnecessary 
but  against  the  interests  of  the  Company.  ^  unnecessary 

Respectfully  submitted, 
James  F.  Gough 
Harkness  B.  Lewis 
Oliver  H.  Simpson 

Committee  on  By-laws 


8o6 


FORMS 


Form  69.    Treasurer's  Affidavit — Corporate  Statement 


State  of  New  Yosk      \ 
County  of  New  Yoik  / 


ss»  • 


On  this  19th  day  of  February,  1920,  personally  appeared  before  me,  a 
Notary  Public  in  and  for  the  County  of  New  York,  Walter  L.  Hood, 
Treasurer  of  the  Hood  Scale  Company,  who,  being  duly  sworn,  did  depose 
and  say  that  he  has  full  charge  and  control  of  the  books  and  accounts  of 
the  said  Company;  that  the  above  and  foregoing  statement  is  taken  from 
said  books  and  accounts;  that  it  is  a  true  and  accurate  transcript  there- 
from; and  that  to  the  best  of  his  knowledge  and  belief  it  is  a  just  and 
correct  pfesentation  of  the  financial  condition  of  said  Company  on  this 

date. 

Walter  L.  Hood 

Sworn  to  before  me  the 
day  and  year  aforesaid. 


{ 


NOTAUAL 
SEAL 


} 


James  H.  Stfelb, 

Notary  Puhlu  for 
New  York  County,  No.  994, 
Ttrm  expires  February  14,  19^1 


The  treasurer's  certificatioii  to  matters  relating  to  the  cor- 
porate finances  is  usually  in  the  form  of  an  affidavit.  This 
affidavit  follows  the  statement  on  the  same  sheet,  or  on  the 
last  sheet  if  the  statement  extends  over  several  pages. 


CHAPTER  CIX 
REAL  AND  PERSONAL  PROPERTY  FORMS 
Form  70.    Chattel  Mortgage 

Chattel  Mortgage 


Know  All  Men  by  These  Presents  : 

That  I,  Harry  J.  Thomas,  of  New  Rochelle,  New  York,  am  indebted 
unto  W.  H.  Richards,  of  New  York  City,  New  York,  in  the  sum  of 
Eighty-Five  Dollars  ($85),  being  for  goods  sold  and  delivered  to  me: 
Now,  for  securing  the  payment  of  the  said  debt,  and  interest  from  the 
date  hereof,  to  the  said  W.  H.  Richards,  I  do  hereby  sell,  assign,  and 
transfer  to  the  said  W.  H.  Richards  all  the  goods,  chattels,  and  property 
described  in  the  following  schedule,  namely. 

{List  of  property) 
Said  property  now  being  and  remaining  in  the  possession  of  myself,  at  my 
store,  No.  165  Orchard  Street,  New  Rochelle,  New  York. 

Provided  always,  and  this  mortgage  is  on  the  express  condition,  that 
if  the  said  Harry  J.  Thomas  shall  pay  to  the  said  W.  H.  Richards  the  sum 
of  Eighty-Five  Dollars  ($85),  within  one  year  and  six  months  from  the 
date  hereof,  with  interest  at  Six  Per  Cent  (6%)  per  annum,  which  said 
sum  and  interest  the  said  Harry  J.  Thomas  hereby  covenants  to  pay,  then 
this  transfer  is  to  be  void  and  of  no  effect;  but  in  case  of  non-payment  of 
the  said  sum  at  the  time  or  times  above  mentioned,  together  with  interest, 
then  the  said  W.  H.  Richards  shall  have  full  power  and  authority  to  enter 
upon  the  premises  of  the  said  party  of  the  first  part,  or  any  other  place 
or  places  where  the  goods  and  chattels  aforesaid  may  be,  to  take  possession 
of  said  property  to  sell  the  same,  and  the  avails  (after  deducting  all 
expenses  of  the  sale  and  keeping  of  the  said  property)  to  apply  in  payment 
of  the  above  debt ;  and  in  case  the  said  W.  H.  Richards  shall  at  any  time 
deem  himself  unsafe,  it  shall  be  lawful  for  him  to  take  possession  of  such 
property  and  sell  the  same  at  pubic  or  private  sale,  previous  to  the  time 
above  mentioned  for  the  payment  of  said  debt,  and  apply  the  proceeds  as 
aforesaid,  after  deducting  all  expenses  of  the  sale  and  keeping  of  said 
property.  If  from  any  cause,  said  property  shall  fail  to  satisfy  said  debt, 
interest,  costs,  and  charges,  the  said  Harry  J.  Thomas  hereby  covenants 
and  agrees  to  pay  the  deficiency. 

In  Witness   Whereof,  I   have  hereunto  affixed  my  hand  and 

seal,  this  eleventh  day  of  February,  nineteen  hundred  and 

twenty. 

,      ,  ,  Harry  J.  Thomas    [l.s.1 

In  the  presence  of: 

George  H.  Goodwin  , 

{Notarial  acknowledgment  in  due  form  if  required) 

807 


8oS 

Form  71.    Lease 


LiAai 


This  Agreement  of  Lease  made  this  9th  day  of  February  in  the  year 
1920,  between  John  K.  Robinson  of  Yonkers,  New  York,  and  Henry  Smith 
ol  Yonkers,  New  York. 

WrrNESSETH.  that  the  said  Robinson  does  demise  unto  the  said  Smith, 
all  of  that  dwelling-house  and  land  situate 

(Full  description) 
from  the  first  day  of  April,  1920,  for  the  term  of  three  years  next  ensuing, 
the  said  lessee.  Smith,  to  pay  therefor,  during  the  said  term,  the  rent  of 
Four  Hundred  and  Fifty  Dollars  ($450)  yearly,  payable  in  equal  monthly 
instalments  of  Thirty- Seven  Dollars  and  Fifty  Cents  ($37-50 )  on  the  first 
day  of  each  month,  the  first  instalment  to  be  paid  on  the  first  day  of 
April  next. 

The  said  lessee  covenants  to  pay  the  rent  in  the  manner  above  stated ; 
that  he  will  not  assign  without  leave ;  that  he  will  leave  the  premises  in 
good  repair,  necessary  wear  and  tear  excepted ;  that  the  premises  shall  not 
be  used  during  the  said  term  for  any  other  purpose  or  purposes  than  those 
above  specified ;  that  he  will  pay  all  bills  for  gas  used  upon  the  premises 
during  the  said  term;  that  at  the  expiration  of  the  said  term,  he  will 
deliver  to  said  lessor,  his  agents  or  assigns,  quiet  and  peaceable  possession 
of  the  said  premises,  and  that  the  lessor  may  re-enter  for  default  of  ten 
days  in  the  payment  of  any  instalment  of  rent,  or  for  the  breach  of  any 
covenant  herein  contained. 

Witness  the  following  signatures  and  seals. 

John  K.  Robinson    [l.s.I 
Henry  Smith  [l.s.1 

(Notarial  acknowledgment  in  due  form) 


Pomi  7a.    Deed  with  Full  Covenants 

FlBVfl 


This  Indenture,  made  the  21st  day  of  January,  nineteen  hundred  and 
twenty,  between  Arthur  Elliott  of  Ithaca,  New  York,  party  of  the  first 
part,  and  Grant  Allen  of  Oyster  Bay,  New  York,  party  of  the  second  part : 

WITNESSETH,  that  the  party  of  the  first  part,  in  consideration  of  Three 
Thousand  Dollars  ($3,000),  lawful  money  of  the  United  States,  paid  by 
the  party  of  the  second  part,  does  hereby  grant  and  release  unto  the  party 
of  the  second  part,  his  heirs  and  assigns  forever,  all  ...  . 

(Description) 

Together  with  the  appurtenances  and  all  the  estate  and  rights  of  the 
party  of  the  first  part  in  and  to  said  premises ; 

To  have  and  to  hold  the  premises  herein  granted  unto  the  party  of 
the  second  part,  his  heirs  and  assigns  forever. 

And  said  Arthur  Elliott  covenants  as  follows:  . 


REAL  AND  PERSONAL  PROPERTY  FORMS 


809 


First — That  said  Arthur  Elliott  is  seized  of  said  premises  in   fee 
simple,  and  has  good  right  to  convey  the  same; 

Second — That  the  party  of  the  second  part  shall  quietly  enjoy  the 
said  premises ; 

Third — That  the  said  premises  are  free  from  incumbrances; 

Fourth — That  the  party  of  the  first  part  will  execute  or  procure  any 
further  necessary  assurance  of  the  title  to  said  premises; 

Fi///i— That  said  Arthur  Elliott  will  forever  warrant  the  title  to  said 
premises. 

In  Witness  Whereof,  the  party  of  the  first  part  has  hereunto 
set  his  hand  and  seal  the  day  and  year  above  written. 

In  presence  of :  Arthur  Elliott  [l.s.] 

A.  M.  Wyckoff 

(Notarial  acknowledgment  in  due  form) 


Form  73.    Real  Estate  Mortgage 


Mortgage 


This  Mortgage,  made  the  i6th  day  of  February,  nineteen  hundred  and 
twenty,  between  Daniel  H.  Coler  of  Yonkers,  New  York,  the  mortgagor, 
and  Charles  Fenner  of  the  same  place,  the  mortgagee. 

WITNESSETH,  that  to  secure  the  payment  of  an  indebtedness  in  the 
sum  of  Twelve  Hundred  Dollars  ($1,200)  lawful  money  of  the  United 
States,  to  be  paid  on  the  15th  day  of  February,  nineteen  hundred  and 
twenty-two,  with  interest  thereon  to  be  computed  from  date,  at  the  rate 
of  Six  Per  Centum  (6%)  per  annum,  and  to  be  paid  the  mortgagee, 
according  to  a  certain  bond  or  obligation  bearing  even  date  herewith, 
the  mortgagor  hereby  mortgages  to  the  mortgagee  .... 

(Description) 
And  the  mortgagor  covenants  with  the  mortgagee  as  follows : 

1.  That  the  mortgagor  will  pay  the  indebtedness  as  hereinbefore 
provided. 

2.  That  the  mortgagor  will  keep  the  buildings  on  the  premises  insured 
against  loss  by  fire  for  the  benefit  of  the  mortgagee. 

3.  That  no  building  on  the  premises  shall  be  removed  or  demolished 
without  the  consent  of  the  mortgagee. 

4.  That  the  whole  of  said  principal  sum  shall  become  due  after 
default  in  the  payment  of  any  instalment  of  principal  or  of  interest  for 
thirty  days,  or  after  default  in  the  payment  of  any  tax,  water  rate,  or 
assessment  for  ten  days  after  notice  and  demand. 

5.  That  the  holder  of  this  mortgage,  in  any  action  to  foreclose  it, 
shall  be  entitled  to  the  appointment  of  a  receiver. 

6.  That  the  mortgagor  will  pay  all  taxes,  assessments,  or  water  rates, 
and  in  default  thereof,  the  mortgagee  may  pay  the  same,  and  all  amounts 
so  paid  shall  be  added  to  the  amount  already  secured  by  this  mortgage. 

7.  That  the  mortgagor,  within  five  days  upon  request  in  person  or 
within  ten  days  upon  request  by  mail,  shall  furnish  a  statement  of  the 
amount  due  on  this  mortgage. 


Sio 


FORMS 


a    That  notice  and  demand  or  request  may  be  in  writing  and  may 
be  served  in  person  or  by  mail. 

a    That  the  mortgagor  warrants  the  title  to  the  premises. 

In  Witness  Whereof,  this  mortgage  has  been  duly  executed  by 
the  mortgagor.  ^^   ^  ,      _ 

In  presence  of :  Daniel  H.  Colee    [l.s.1 

Anna  B.  Tyler 

{Notoriai  acknowledgment  in  due  form} 


The  foregoing  instruments  affecting  realty  are  made  ac- 
cording to  "short  forms."  It  is  safest  always  to  look  up  the 
matter  and  find  out  what  forms  can  be  used  in  the  particular 
state  where  the  land  transferred  is  situated.  The  forms  of 
deeds,  mortgages,  and  notarial  acknowledgments  are  prescribed 
by  law  in  each  state.  It  is  always  easier  and  less  trouble 
to  follow  precedent  in  legal  matters;  in  other  words,  to  keep 
in  the  well-worn  ruts  and  not  to  try  experiments. 


CHAPTER  CX 


SUNDRY  FORMS 


Form  74.    General  Release 


General  Release 


To  All  To  Whom  These  Presents  Shall  Come  Or  May  Concern, 

Greetings  : 

Know  Ye,  That  I,  A.  B.  Corey  of  New  York  City,  for  and  in  con- 
sideration of  the  sum  of  Sixty  Dollars  ($60),  Twenty  Dollars  ($20)  of 
which  has  heretofore  been  received  by  me,  and  Forty  Dollars  ($40)  to  me 
in  hand  paid,  by  Harvey  M.  Price  of  New  York  City,  the  receipt  whereof 
is  hereby  acknowledged,  have  remised,  released,  and  forever  discharged, 
and  by  these  presents  do  for  myself,  my  heirs,  executors,  and  adminis- 
trators, remise,  release,  and  forever  discharge,  the  said  Harvey  M.  Price, 
his  heirs,  executors,  and  administrators,  of  and  from  any  and  all  manner 
of  action  and  actions,  suits,  debts,  dues,  sums  of  money,  accounts,  bonds, 
bills,  contracts,  damages,  judgments,  claims,  and  demands  whatsoever,  in 
law  or  in  equity,  which  against  said  Harvey  M.  Price  I  ever  had,  for,  upon, 
or  by  reason  of  any  matter,  cause,  or  thing  whatsoever,  from  tiie  beginning 
of  the  world  to  the  date  of  these  presents. 

In  Witness  Whereof,  I  have  hereunto  set  my  hand  and  seal 

this  i8th  day  of  February,  one  thousand  nine  hundred  and 

twenty. 


Sealed  and  delivered 
in  the  presence  of 
Mary  A.  Lake 


A.  B.  Corey 


[L.S.] 


|ii 


In  any  settlement  of  a  matter  in  dispute,  it  is  prudent  to 
provide  evidence  to  show  that  the  matter  is  finally  decided. 
Frequently  a  simple  receipt  for  any  amount  paid  "in  full  settle- 
ment of  all  claims*'  is  enough.  Where  a  more  formal  instru- 
ment is  desired,  a  release  is  drawn  up  in  the  form  as  given 
above.  Sometimes  the  parties  exchange  releases,  so  that  each 
may  have  written  evidence  of  the  settlement. 

811 


8l3  FORMS 


Form  75.    Will 


I,  Russell  Sage,  of  the  City  and  State  of  New  York,  do  hereby  make, 
publish  and  declare  this  my  last  Will  and  Testament,  in  manner  and  form 
following : 

First:  I  direct  that  all  my  just  debts  and  funeral  expenses  be  paid  as 
soon  after  my  decease  as  conveniently  can  be  done. 

Second:  I  give  and  bequeath  to  my  sister,  Fanny  Chapin,  wife  of 
Samuel  Chapin,  of  Oneida,  New  York,  should  she  survive  me,  the  sum  of 
Ten  thousand  ($10,000)  dollars. 

Third:  I  give  and  bequeath  to  each  and  every  one  of  my  nephews  and 
nieces  of  my  own  blood  me  surviving  the  sum  of  Twenty-five  thousand 
($25,000)  dollars;  and  in  the  event  that  any  of  such  nephews  or  nieces 
shall  have  died  before  me,  leaving  lawful  issue  him  or  her  surviving, 
then  I  give  and  bequeath  a  like  sum  of  Twenty-five  thousand  ($25,000) 
dollars  to  the  surviving  lawful  issue  of  each  nephew  or  niece  so  dying 
before  me,  the  same  to  be  distributed  among  such  issue  share  and  share 
alike,  per  stirpes  and  not  per  capita. 

Fourth:  All  the  rest,  residue,  and  remainder  of  my  estate,  real,  per- 
sonal and  mixed,  wheresoever  situate,  of  which  I  may  die  seized  or  pos- 
sessed, or  to  which  I  may  be  entitled  at  the  time  of  my  decease,  I  give, 
devise  and  bequeath  to  my  wife,  Margaret  Olivia  Sage,  to  have  and  to 
hold  the  same  to  her,  absolutely  and  forever. 

Fifth:  This  provision  for  my  wife  is  to  be  in  lieu  of  all  right  of 
dower  in  my  estate. 

Sixth:  I  authorize  and  empower  my  executors  hereinafter  named, 
and  the  survivors  and  survivor  of  them,  to  sell  and  dispose  of  all  or  any 
of  the  real  estate  of  which  I  shall  die  seized  or  possessed,  at  public  or 
private  sale,  at  such  times  and  on  such  terms  and  conditions  as  they,  the 
survivors  or  survivor  of  them,  shall  deem  meet  or  proper,  and  to  execute, 
acknowledge,  and  deliver  all  proper  writings,  deeds  of  conveyance  and 
transfers  therefor. 

Seventh:  Should  any  of  the  gifts  and  bequests  made  by  me  in  the 
second  and  third  paragraphs  of  this  my  will  lapse  or  fail  for  any  reason, 
I  direct  that  the  bequests  so  lapsing  or  failing  shall  go  to  and  form  part 
of  my  residuary  estate,  and  be  disposed  of  under  and  in  accordance  with 
the  provisions  of  the  fourth  paragraph  of  this  my  will. 

lEighth:  I  nominate,  constitute  and  appoint  my  wife,  Margaret  Olivia 
Sage ;  Dr.  John  P.  Munn,  of  the  City  of  New  York ;  Almon  Cjoodwin  of 
said  City,  and  Charles  W.  Osborne  long  my  confidential  and  trusted 
assistant,  the  survivors  and  survivor  of  them,  executrix  and  executors  of 
this  my  last  Will  and  Testament. 

In  the  event  of  the  death,  refusal  or  inability  to  act  of  said  Charles 
W.  Osborne,  I  hereby  nominate  and  appoint  Edward  C.  Osborn,  also  for 
some  years  past  in  my  employment,  as  Executor  in  his  place  and  stead.  I 
further  direct  that  none  of  the  persons  above  named  as  executors  shall 
be  required  to  give  any  bond  or  security  for  the  proper  discharge  of  their 
duties. 

Ninth:  I  hereby  authorize  and  direct  my  said  executors  to  rent  a 
suitable  office  for  the  transaction  of  the  business  of  my  estate,  and  to 
employ  and  pay  out  of  the  funds  of  my  estate  all  the  clerks  and  book- 
keepers that  may  be  necessary  for  the  proper  care  and  management 
thereof. 


SUNDRY  FORMS 


813 


Tenth:  I  hereby  revoke  all  former  or  other  wills  and  testamentary 
dispositions  by  me  at  any  time  heretofore  made. 

Eleventh:  Should  any  of  the  beneficiaries,  under  this  my  will,  other 
than  my  said  wife,  object  to  the  probate  thereof,  or  in  any  wise,  directly  or 
indirectly,  contest  or  aid  in  contesting  the  same,  or  any  of  the  provisions 
thereof,  or  the  distribution  of  my  estate  thereunder,  then  and  in  that  event 
I  annul  any  bequest  herein  made  to  such  beneficiary,  and  it  is  my  will  that 
such  beneficiary  shall  be  absolutely  barred  and  cut  off  from  any  share  in 
my  estate. 

In  Witness  Whereof,  I  have  hereunto  subscribed  my  name 
and  affixed  my  seal  at  No.  2  Wall  Street,  New  York  City, 
Borough  of  Manhattan,  this  eleventh  day  of  February,  1901, 
in  the  presence  of  Edward  Townsend  and  Richard  W.  Freed- 
man,  whom  I  have  requested  to  become  attesting  witnesses 
hereto. 

Russell  Sage    [seal] 

The  foregoing  instrument  was  subscribed,  sealed,  published,  and  de- 
clared by  Russell  Sage  as  and  for  his  last  Will  and  Testament,  in  our 
presence  and  in  the  presence  of  each  of  us,  and  we,  at  the  same  time,  at 
his  request,  in  his  presence  and  in  the  presence  of  each  other,  hereunto 
subscribe  our  names  and  residences  as  attesting  witnesses  this  nth  day  of 
February,  1901. 

Edward  Townsend,  130  West  121st  St..  New  York. 
R.  W.  Freedman,  32  West  123rd  St.,  N.  Y.  City. 


8i4 


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SUNDRY  FORMS 


If  charges  are  to  be  prepaid,  write 
or  stamp  here,  "  To  be  Prepaid. " 

1 

s 

u 

0!| 

to   apply   in   prepayment   of   the 
charges  on  the  property  described 
hereon. 

1  ; 
1 

(The  signature  here  acknowledges 
only  the  amount  prepaid.) 

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FORMS 


SUNDRY  FORMS 


817 


Fonn  76.    (b)  Bill  of  Lading  (rcvcrtc) 


CoMmnoNs 


Sec  1.  The  carrier  or  party  in  possession  of  any  of  the  property 
herein  described  shall  be  liable  for  any  loss  thereof  or  damage  thereto, 
except  as  hereinafter  provided.  . 

No  carrier  or  party  in  possession  of  any  of  the  property  herein 
described  shall  be  liable  for  any  loss  thereof  or  damage  thereto  or  delay 
caused  by  the  act  of  God,  the  public  enemy,  quarantine,  the  authority 
of  law,  or  the  act  or  default  of  the  shipper  or  owner,  or  for  differences 
in  the  weights  of  grain,  seed,  or  other  commodities  caused  by  natural 
shrinicage  or  discrepancies  in  elevator  weights.  For  loss,  damage,  or 
delay  caused  by  fire  occurring  after  forty-eight  hours  (exclusive  of  legal 
holidays)  after  notice  of  the  arrival  of  the  property  at  destination  or  at 
port  of  export  (if  intended  for  export)  has  been  duly  sent  or  given, 
the  carrier's  liability  shall  be  that  of  warehouseman  only.  Except  in 
case  of  negligence  of  the  carrier  or  party  in  possession  (and  the  burden 
to  prove  freedom  from  such  neghgence  shall  be  on  the  carrier  or  party 
in  possession),  the  carrier  or  party  in  possession  shall  not  be  liable  for 
loss,  damage,  or  delay  occurring  while  the  property  is  stopped  and  held 
in  transit  upon  request  of  the  shipper,  owner,  or  party  entitled  to  make 
such  request ;  or  resulting  from  a  defect  or  vice  in  the  property  or  from 
riots  or  strikes.  When  in  accordance  with  general  custom,  on  account 
of  the  nature  of  the  property,  or  when  at  the  request  of  the  shipper  the 
property  is  transported  in  open  cars,  the  carrier  or  party  in  possession 
(except  in  case  of  loss  or  damage  by  fire,  in  which  case  the  liability  shall 
be  the  same  as  though  the  property  had  been  carried  in  closed  cars) 
shall  be  liable  only  for  neghgence,  and  the  burden  to  prove  freedom  from 
such  negligence  shall  be  on  the  carrier  or  party  in  possession. 

Sec  2.  In  issuing  this  bill  of  lading  this  company  agrees  to  transport 
only  over  its  own  line,  and  except  as  otherwise  provided  by  law  acts  only 
IS  agent  with  respect  to  the  portion  of  the  route  beyond  its  own  line. 

No  carrier  shall  be  hable  for  loss,  damage,  or  injury  not  occurring 
on  its  own  road  or  its  portion  of  the  through  route,  nor  after  said  property 
has  been  delivered  to  the  next  carrier,  except  as  such  liability  is  or  may 
be  imposed  by  law,  but  nothing  contained  in  this  bill  of  lading  shall  be 
deemed  to  exempt  the  initial  carrier  from  any  such  liability  so  imposed. 

Sec.  3.  No  carrier  is  bound  to  transport  said  property  by  any 
particular  train  or  vessel,  or  in  time  for  any  particular  market  or  other- 
wise than  with  reasonable  dispatch,  unless  by  specific  agreement  indorsed 
hereon.  Every  carrier  shall  have  the  right  in  case  of  physical  necessity 
to  forward  said  property  by  any  railroad  or  route  between  the  point  of 
shipment  and  the  point  of  destination ;  but  if  such  diversion  shall  be  from 
a  rail  to  a  water  route  the  liability  of  the  carrier  shall  be  the  same  as 
though  the  entire  carriage  were  by  rail. 

The  amount  of  any  loss  or  damage  for  which  any  carrier  is  liable 
shall  be  computed  on  the  basis  of  the  value  of  the  property  at  the  place 
and  time  of  shipment  under  this  bill  of  lading,  including  the  freight 
charges,  if  paid. 


Except  where  the  loss,  damage,  or  injury  complamed  of  is  due  to 
delay  or  damage  while  being  loaded  or  unloaded,  or  damaged  in  transit 
by  carelessness  or  negligence,  as  conditions  precedent  to  recovery,  claims 
must  be  made  in  writing  to  the  originating  or  delivering  carrier  within 
six  months  after  delivery  of  the  property  (or,  in  case  of  export  trattic, 
within  nine  months  after  delivery  at  port  of  export)  or,  in  case  of  failure 
to  make  delivery,  then  within  six  months  (or  nine  months  in  case  ot 
export  traffic)  after  a  reasonable  time  for  delivery  has  elapsed;  and  suits 
for  loss,  damage  or  delay  shall  be  instituted  only  within  two  years  and 
one  day  after  delivery  of  the  property,  or,  in  case  of  failure  to  make 
delivery  then  within  two  years  and  one  day  after  a  reasonable  time  tor 
delivery  has  elapsed.  , 

Any  carrier  or  party  liable  on  account  of  loss  or  damage  to  any  ot 
said  property  shall  have  the  full  benefit  of  any  insurance  that  may  have 
been  effected  upon  or  on  account  of  said  property,  so  far  as  this  shall 
not  avoid  the  policies  or  contracts  of  insurance. 

Sec  4.  All  property  shall  be  subject  to  necessary  cooperage  and 
baling  at  owner's  cost.  Each  carrier  over  whose  route  cotton  is  to  be 
transported  hereunder  shall  have  the  privilege,  at  its  own  cost  and  risk, 
of  compressing  the  same  for  greater  convenience  in  handling  or  forward- 
ing and  shall  not  be  held  responsible  for  deviation  or  unavoidable  delays 
in  procuring  such  compression.  Grain  in  bulk  consigned  to  a  point  where 
there  is  a  railroad,  public,  or  licensed  elevator,  may  (unless  otherwise 
expressly  noted  herein,  and  then  if  it  is  not  promptly  unloaded)  be  there 
delivered  and  placed  with  other  grain  of  the  same  kind  and  grade  without 
respect  to  ownership,  and  if  so  delivered  shall  be  subject  to  a  hen  for 
elevator  charges  in  addition  to  all  other  charges  hereunder. 

Sec  5.  Property  not  removed  by  the  party  entitled  to  receive  it 
within  forty-eight  hours  (exclusive  of  legal  holidays)  after  notice  of  its 
arrival  has  been  duly  sent  or  given  may  be  kept  in  car,  depot  or  place 
of  delivery  of  the  carrier,  or  warehouse,  subject  to  a  reasonable  charge 
for  storage  and  to  carrier's  responsibility  as  warehouseman  only,  or  may 
be  at  the  option  of  the  carrier,  removed  to  and  stored  in  a  public  or 
licensed  warehouse  at  the  cost  of  the  owner  and  there  held  at  the  owner  s 
risk  and  without  liability  on  the  part  of  the  carrier,  and  subject  to  a  hen 
for  all  freight  and  other  lawful  charges,  including  a  reasonable  charge 

The  carrier  may  make  a  reasonable  charge  for  the  detention  of  any 
vessel  or  car,  or  for  the  use  of  tracks  after  the  car  has  been  held  forty- 
eight  hours  (exclusive  of  legal  holidays)  for  loading  or  unloading,  and 
may  add  such  charge  to  all  other  charges  hereunder  and  hold  such 
property  subject  to  a  lien  therefor.  Nothing  in  this  section  shall  be  con- 
strued as  lessening  the  time  allowed  by  law  or  as  setting  aside  any 
local  rule  affecting  car  service  or  storage. 

Property  destined  to  or  taken  from  a  station,  wharf,  or  landing  at 
which  there  is  no  regularly  appointed  agent  shall  be  entirely  at  risk  of 
owner  after  unloaded  from  cars  or  vessels  or  until  loaded  into  cars  or 
vessels,  and  when  received  from  or  delivered  on  private  or  other  sidings, 
wharves,  or  landings  shall  be  at  owner's  risk  until  the  cars  are  attached 
to  and  after  they  are  detached  from  trains. 

Sec  6.  No  carrier  will  carry  or  be  liable  in  any  way  for  any  docu- 
ments, specie,  or  for  any  articles  of  extraordinary  value  not  specifically 
rated  in  the  published  classifications  or  tariffs,  unless  a  special  agreement 
to  do  so  and  a  stipulated  value  of  the  articles  are  indorsed  hereon. 


Si8 


FORMS 


Sec  7.  Every  party,  whether  principal  or  agent,  shipping  explosive 
or  dangerous  goods,  without  previous  full  written  disclosure  to  the  carrier 
of  their  nature,  shall  be  liable  for  all  loss  or  damage  caused  thereby, 
and  such  goods  may  be  warehoused  at  owner's  risk  and  expense  or  de- 
stroyed without  compensation. 

Sec.  8.  The  owner  or  consignee  shall  pay  the  freight  and  all  other 
lawful  charges  accruing  on  said  property,  and,  if  required,  shall  pay  the 
same  before  delivery.  If  upon  inspection  it  is  ascertained  that  the  articles 
shipped  are  not  those  described  in  this  bill  of  lading,  the  freight  charges 
must  be  paid  upon  the  articles  actually  shipped. 

Sec.  9.  Except  in  case  of  diversion  from  rail  to  water  route,  which 
is  provided  for  in  section  3  hereof,  if  all  or  any  part  of  said  property 
is  carried  by  water  over  any  part  of  said  route,  such  water  carriage  shall 
be  performed  subject  to  the  liabilities,  limitations,  and  exemptions  pro- 
vided by  statute  and  to  the  conditions  contained  in  this  bill  of  lading  not 
inconsistent  with  such  statutes  or  this  section,  and  subject  also  to  the 
condition  that  no  carrier  or  party  in  possession  shall  be  liable  for  any 
loss  or  damage  resulting  from  the  perils  of  the  lakes,  sea,  or  other  waters; 
or  from  explosion,  bursting  of  boilers,  breakage  of  shafts  or  any  latent 
defect  in  hull,  machinery,  or  appurtenances;  or  from  collision,  stranding, 
or  other  accidents  of  navigation,  or  from  prolongation  of  the  voyage. 
And  any  vessel  carrying  any  or  all  of  the  property  herein  described  shall 
have  the  liberty  to  call  at  intermediate  ports,  to  tow  and  be  towed,  and 
assist  vessels  in  distress,  and  to  deviate  for  the  purpose  of  saving  life 
or  property. 

*  The  term  "water  carriage"  in  this  section  shall  not  be  construed  as 
including  lighterage  across  rivers  or  in  lake  or  other  harbors  and  the 
liability  for  such  lighterage  shall  be  governed  by  the  other  sections  of 
this  instrument. 

If  the  property  is  being  carried  under  a  tariff  which  provides  that 
any  carrier  or  carriers  party  thereto  shall  be  liable  for  loss  from  perils 
of  the  sea  then  as  to  such  carrier  or  carriers  the  provisions  of  this 
section  shall  be  modified  in  accordance  with  the  provisions  of  the  tariff, 
which  shall  be  treated  as  incorporated  into  the  conditions  of  this  bill  of 
lading. 

Sec  10.  Any  alteration,  addition  or  erasure  in  this  bill  of  lading 
which  shall  be  made  without  an  indorsement  thereof  hereon,  signed  by 
the  agent  of  the  carrier  issuing  this  bill  of  lading,  shall  be  without  effect, 
and  this  bill  of  lading  shall  be  enforceable  according  to  its  original  tenor. 


Fonn  77.    Guaranty  Contract 


GUAKANTY 


'  The  Undersigned,  for  and  in  consideration  of  one  dollar  in  hand  paid 
by  George  T.  Larkins  of  Dallas,  Texas,  hereinafter  called  the  Purchaser, 
the  receipt  whereof  is  hereby  acknowledged,  and  the  further  consideration 
of  enabling  the  said  Purchaser  to  buy  goods,  wares,  and  merchandise  on 
credit  from  Green  &  Company,  Minneapolis,  Minnesota,  hereinafter  called 
tile  Vendor,  hereby  jointly  and  severally  guarantee  the  payment  of,  and 
Mnd  ourselves  personally,  our  heirs,  executors,  and  administrators  to  said 


SUNDRY  FORMS 


819 


Vendor   for  the  Davment  of  all  debts  of  every  kind,  name,  and  nature, 
JidudTng  i?te^^  the  said  Purchaser  is  now  owmg,  or  may  here 

after  owe   the  said  whether  due  or  not  due,  provided,  however 

?hat  thriiaWHt^  of  the  undersigned  hereunder  shall  not  be  for  a  greater 
amount  than  Five  Thousand  Dollars  ($5,000)  and  mterest    ^       . 

The  undersigned  agree  that  the  debts,  payment  of  which  is  hereby 
guaranteed  rnay.  by  note  or  otherwise,  be  changed  m  form,  extended,  or 
fenlwed  at'  the  Option  of  said  Vendor  without  notice  to  the  undersigned. 
anTThe  Uablity  of  the  undersigned  shall  not  be  affected  by  such  change 
cxtensfon   or  renewal;  that  this  guaranty  shall  remam  m  full  force  and 
Sect  up  Vo  such  d^te'as  the  said  Vendor  shall  have  received  at  its  office 
in  Minneapolis.  Minnesota,  written  notice  from  the  undersigned  t^  cease 
selling  the  said  Purchaser  on  the  strength  of  their  guaranty,  tnai  me 
Vendor  may  It  its  option  extend  credit  to  the  Purchaser  to  an  amount 
in  excLrof  the  limit  to  this  guaranty  without  impairing  our  joint  and 
several   liabilities  hereunder;   that  should   said   Vendor   commence   suit 
lealnst  the  Purchaser,  or  against  the  undersigned  on  this  guaranty,  to 
ply  a  reasonable  attorney  fee.  and  that  the  same  may  be  taxed  agamst 
fht'  nndersiened  as  oart  of  the  costs  in  said  action.        ,        .   , 
*      TheTndersi^ed^^  waives  notice  from  the  Vendor  of  the  amount 

of  indebtedness,  default  in  payment,  or  of  the  acceptance  of  this  guaranty^ 
In  Witness  Whereof,  we  have  hereunto  subscribed  our  names 
at  St  Louis,  Missouri,  on  this  2d  day  of  February,  a.d.,  1920. 

R.  L.  Sanders 
Charles  D.  Bates 
Lee  D.  Norris 

Witnesses : 

Harold  Smith 
James  B.  Donnelly 


Form  78.    Guaranty  Contract  by  Letter 

Todd  &  Co., 

Terre  Haute,  Indiana. 

^^Tor^'valuTreceived,  and  in  consideration  that  you  shall  hereafter  give 
credit  to  Thomas  J.  Allen  from  time  to  time  in  the  course  of  his  busmess 
as  retan  grocer  in  Terre  Haute.  Indiana.  I.  James  S.  Martin,  do  hereby 
Undertake  and  guarantee  the  payment  of  any  sums  for  which  said  Thomas 
j:  Allen  may  become  indebted  to  you,  not  to  exceed  the  sum  of  Two 

'^^^ThTs^in'^t'r^^^^^^^^  as  a  general,  unlimited,  continuing  guar- 

antv  whereby  I  undertake  and  guarantee  as  a  primary  habihty  upon  me, 
^y  and  all  balance  of  indebtedness  due  you  from  Thomas  J  Allen  or 
Sat  may  hereafter  become  due,  and  any  contract  entered  into  by  Thomas 
J  AlTen"^  and  Todd  &  Co..  creating  or  extending  ^^^^  indebtedness,  or 
changing  the  form  thereof,  shall  be  bindmg  upon  me,  without  notice,  and 
render  me  liable  under  this  guaranty.    ^^^^^  ^  ^^^^^ 

Chicago,  Illinois, 
January  10,  1920 


' 


S20 


FORMS 


Form  79.    Agreement  for  Arbitration 


Agreement  for  Arbitration 


This  Agreement  made  this  pth  day  of  February,  1920,  between  J.  S. 
Thompson  and  Arnold  Baker,  both  of  Brooklyn,  New  York. 

WITNESSETH,  that  whcrcas  there  is  now  between  the  said  parties  a 
controversy  in  relation  to  ...  . 

(State  fully  here  the  matter  in  dispute.) 

Now,  therefore,  the  said  parties  do  hereby  submit  the  said  difference 
to  the  arbitration  of  Clifford  Wilson,  James  Emerson,  and  Henry  Harland, 
or  any  two  of  them,  and  they  do  mutually  covenant  and  agree  with  each 
other  that  the  award  to  be  made  by  the  said  arbitrators  shall  be  obeyed 
and  observed  by  each  of  them. 

It  is  understood  and  agreed  that  the  said  award  shall  be  made  in 
writing,  under  the  hands  of  the  said  arbitrators,  or  any  two  of  them,  and 
shall  be  dehvered  to  said  parties  on  or  before  the  15th  day  of  the  present 
month. 

It  is  further  agreed  that  said  arbitrators,  or  any  two  of  them,  may  at 
their  discretion  award  the  expenses  and  cost  of  this  reference  and  assess 
the  same  on  either  or  both  of  the  said  parties. 

In  Witness  Whereof,  the  parties  hereto  have,  on  the  day  and 
date  aforesaid,  hereunto  afl&xed  their  signatures  and  seals 
in  the  City  of  Brooklyn. 
Witness:  J.  S.  Thompson    [l-S.] 

William  T.  Johnson  Ainold  Baker      [l,s.] 


)\  I' 


APPENDIX 


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APPENDIX  B 


It 


A  PROFESSIONAL  LAW  LIBRARY 

Someone  qualified  to  speak  has  said  that  the  lawyer's  art 
consists  in  knowing  where  to  find  the  law.  The  means  for 
doing  this  are  to  be  found  in  the  law  library.  A  lawyer's 
library  is  of  vital  importance  and  costs  much  to  start  and  much 
to  keep  up  from  year  to  year. 

A  good  law  library  would  have  the  statutes  and  state  re- 
ports of  the  state  in  which  it  is  situated  and  also  the  reports 
of  the  United  States  Supreme  Court  from  the  beginning.  It 
would  also  have  digests  of  the  state  reports  and  of  the  United 
States  Supreme  Court  reports.  A  digest  is  a  work  in  which 
legal  subjects  are  alphabetically  arranged  and  after  each  head- 
ing IS  a  brief  resume  of  the  court  decisions  bearing  upon  the 
subject.  The  state  and  the  Supreme  Court  reports  would  be 
of  little  use  without  the  aid  of  digests.  A  lawyer's  library 
would  also  have  one  of  the  great  legal  encyclopedias  already 

mentioned. 

Then  there  should  be  a  limited  number  of  the  better  text- 
books. Some  text-books  by  reason  of  the  learning  and  sound 
judgment  of  the  author  rank  nearly  as  high  as  court  decisions, 
and  a  lawyer's  library  should  contain  these  text-books.  If  he 
could  afford  it,  he  would  have  the  reports  of  some  of  the 
other  states  as  well  as  those  of  his  own.  The  courts  of  last 
resort  of  New  York  and  Massachusetts  have  perhaps  the  high- 
est reputation  of  any  of  the  state  courts  and  are  more  often 
cited  in  argument.  Such  a  library  as  this  would  be  useful 
only  to  a  trained  lawyer,  and  to  look  up  a  legal  point  in  such 
a  library  would  require  professional  ability. 

Young  lawyers  generally  try  to  get  desk-room  with  older 

824 


A  PROFESSIONAL  LAW  LIBRARY 


825 


practitioners,  who  already  have  libraries;  older  lawyers  com- 
bine into  professional  firms  so  as  to  make  the  expense  of 
books  and  office  accommodations  less  onerous.  Most  lawyers 
depend,  too,  on  the  large  professional  libraries  that  are  to  be 
found  in  almost  every  city  of  any  size. 

Citations 

A  few  words  on  how  to  look  up  a  case  reference  will  be 
of  value  to  the  reader.     In  practically  every  case  given  the 
plaintiff's  name  appears  first.  For  example,  *'Swim  v.  Wilson, 
13  Cal.  126,"  means  Swim,  plaintiff  against  (v= versus)  Wil- 
son, defendant,  reported  in  Volume  13  of  the  California  Su- 
preme  Court  Reports,  at  page  126.     "Whitney  v.  Martme, 
88  N    Y.  535,"  means  Whitney,  plaintiff  against  Martme, 
defendant,  reported  in  Volume  88  of  the  reports  of  the  New 
York  Court  of  Appeals  at  page  535-    As  a  general  rule  the 
mere  abbreviation  of  a  state  name  means  the  reports  of  the 
highest  court  of  the  state.     In  most  states  this  is  called  the 
Supreme  Court,  but  in  New  York  and  a  few  others,  the  Court 
of  Appeals  is  the  highest  court  in  the  state.     (See  chart.  Ap- 
pendix A.)  r^     ^ 
The  letters  "U.  S."  mean  the  reports  of  the  Supreme  Court 
of  the  United  States,  while  "Fed.  Rep."  (Federal  Reporter) 
refers  to  a  collection  of  the  most  noteworthy  reports  from  the 
United  States  Circuit  and  District  Courts. 

In  the  United  States  and  in  Canada,  volumes  of  reports 
were  sometimes  put  out  under  the  name  of  the  court  reporter. 
It  is  the  older  volumes  of  the  United  States  and  English 
reports  that  are  designated  in  this  manner.  So  "68  Wall. 
178"  would  be  Volume  68  of  the  U.  S.  Supreme  Court  Reports 
reported  by  Wallace,  page  178-  Some  other  well-known  re- 
porters of  the  U.  S.  Supreme  Court  are  Wheat.  (Wheaton), 
How.  (Howard),  and  Cranch. 

Hun  is  a  very  well-known  reporter  of  some  of  the  lower 


836 


APPENDIX 


A  PROFESSIONAL  LAW  LIBRARY 


837 


courts  in  New  York  State,  while  Allen  is  a  reporter  of  cases 
from  the  Massachusetts  Supreme  Court.  Where  there  are 
two  men  with  the  same  name  among  the  court  reporters,  one 
of  them  will  have  after  his  name  the  state  or  province  in 
which  he  reports,  as:  "Allen  (N.  B.)/'  meaning  Allen  of 
New  Brunswick. 

Some  of  the  reporters  of  Massachusetts  cases  are  Allen, 
Gushing,  Gray,  Metcalf,  Quincy,  Pickering,  Tyng,  and  Wil- 
liams. Among  those  in  New  York  are  Abbott,  Anthon,  Bar- 
bour, Daly,  Denio,  Lansing  and  Hun. 

In  England  the  House  of  Lords  is  the  supreme  and  final 
court  of  appeal.  Apart  from  this  are  the  Court  of  Appeals 
and  the  High  Court  of  Justice.  This  last  court  consists  of 
three  divisions,  (i)  the  Chancery,  (2)  The  Queen's  Bench, 
and  (3)  the  Probate,  Divorce  and  Admiralty  Division.  Then 
each  county  has  its  court  and  there  are  numerous  courts  of 
inferior  jurisdiction.  So,  for  example,  a  reference  to  "Moss 
V.  Moss,  (1897)  Pro.  Div.  263,"  means  Moss,  plaintiff  against 
Moss,  defendant,  found  in  the  reports  of  the  Probate  Division 
for  the  year  1897  at  page  263.  There  are  also  reports  of 
decisions  of  judges,  as  for  example  "i  Ld.  Raymond  264," 
which  means  Volume  I  of  the  Decisions  of  Lord  Raymond 
on  cases  from  King's  Bench  Division  and  Common  Pleas 
(these  courts  are  now  extinct),  at  page  264. 

Only  by  practice  can  a  person  know,  when  a  case  reference 
is  given,  what  court  decision  the  author  cites.  It  is  no  small 
part  of  a  lawyer's  training  to  know  where  to  find  the  things 

he  wants. 

There  are  forty-dght  states  and  not  only  are  the  deasions 
of  the  higher  courts  reported,  but  in  some  of  the  states  the 
decisions  of  many  of  the  lower  courts  are  published.  Then 
there  are  also  the  numerous  volumes  of  reports  of  the  decisions 
of  the  Supreme  Court  of  the  United  States,  of  the  circuit 
courts,  and  of  the  district  courts. 


The  yearly  output  of  all  of  these  various  reports  would 
make  a  large  library  in  itself,  and  it  must  be  remembered  that 
these  reports  have  been  recorded  in  this  country  almost  smce 
the  time  of  the  making  of  the  Constitution.  On  this  account, 
to  keep  up  a  serviceable  law  library  is  continuously  costly, 
and  in  cities  where  rents  are  high  the  space  occupied  is  no 
small  expense.  In  charging  clients  aU  of  this  ouUay  must  be 
calculated. 


APPENDIX  C 


GLOSSARY 

Abduction.    The  taking  or  carrying  away  of  a  man's  wife,  child, 

or  maid. 
Abet.    To  aid  and  encourage  another  to  commit  a  crime. 
Abjudicate.    To  transfer  or  to  give  away  by  judgment. 
Abscond.    To  leave  one's  home  or  to  conceal  oneself  to  avoid  legal 

detection. 
Abstract  of  Title.    A  summary  of  all  deeds,  wills,  and  legal  pro- 
ceedings, giving  the  names  of  the  parties,  the  description  of  the 

land,  and  the  agreement. 
Acquittal.    A  discharge  and  release  from  a  legal  action. 
Act  of  God.    x\n  inevitable  occurrence,  such  as  flood,  tempests,  death, 

etc. 
Adjudication.    A  decision  or  judgment. 
Administratok.    One  appointed  by  the  probate  court  where  a  person 

dies  intestate  to  take  charge  of  the  decedent's  property. 
Adolescence.    The  period  between  12  and  21  in  females  and  14  and 

21  in  males. 
Adverse  Possession.     Possession  in  opposition  or  denial  of  the  right 

of  another,  as  the  adverse  holding  of  land  or  property. 
Affinity.    The  relationship  from  marriage  between  the  wife  and 

relatives  of  her  husband  and  vice  versa. 
Affreightment.    The  contract  by  which  a  ship  is  to  carry  goods. 
Alienate.    To  transfer  property. 
Alimony.    The  money  paid  by  a  husband  to  a  wife  for  her  support 

either  during  a  suit  for  separation  or  after  the  separation  or 

divorce  has  been  granted. 
Allonge.    A  piece  of  paper  added  to  a  negotiable  instrument  whereon 

additional  signatures  may  be  added. 
Amalgamation.    The  combining  of  two  corporations  into  one. 
Arson.    The  wilful  and  malicious  burning  of  a  building. 
Assess.    To  ascertain  the  value  of  a  man's  property  for  taxation. 
Assign.    To  transfer  property  and  rights  in  action  (chose  in  action). 
Attestation.    The  evidence  by  witness  as  to  the  execution  of  any 

instrument. 
Attorney-in-Fact.    An  agent  who  acts  under  scaled  authority. 

82S 


GLOSSARY 


829 


Average.    A  contribution  or  adjustment  made  by  merchants  for  goods 

that  have  been  thrown  overboard  or  lost.     It  is  either  general 

or  particular. 
Baggage.    Clothing  and  such  other  articles  as  are  necessary  for  the 

comfort  and  convenience  of  a  passenger. 
Bailment.    A  contract  arising  from  the  delivery  of  goods  by  one 

person  to  another   for  some  specific  purpose  and  to   be  later 

returned. 
Bankrupt.    One  who  is  unable  to  meet  his  bills  as  they  fall  due  and 

has  been  adjudged  a  bankrupt  by  a  court  of  competent  jurisdiction. 
Barter.    A  contract  to  exchange  goods   for  goods  instead  of  for 

money. 
Beneficiary.    One  who  has  the  profit,  benefit,  or  advantage  arising 

from  a  contract  or  an  estate ;  also  a  cestui  que  trust. 
Bequeath.    To  make  a  gift  of  personal  property  by  will. 
Bigamy.    The  offense  of  having  two  wives  or  two  husbands  at  one 

time. 

Bilateral  Contract,  A  contract  where  both  the  contracting  parties 
are  bound  to  fulfil  obligations  reciprocally  towards  each  other. 

Bill  of  Exchange.  An  unconditional  order  in  writing  by  one  per- 
son to  another  and  signed  by  the  giver,  charging  the  person  to 
whom  it  is  addressed  or  given,  to  pay  on  demand  or  at  some 
future  time  a  certain  sum  to  a  specified  person. 

Bill  of  Lading.  A  receipt,  usually  in  duplicate  or  triplicate,  of  goods 
received,  given  by  the  carrier  to  the  shipper. 

Bona  Fide.     In  good  faith;  honestly. 

Bottomry.  A  species  of  mortgage  on  a  ship,  by  which  the  ship  and 
the  cargo  are  pledged  as  security  for  the  repayment  of  a  sum  of 
money.  If  the  ship  is  totally  lost  the  lender  loses  his  money; 
but  if  the  ship  returns  safely  he  recovers  his  principal  together 
with  the  interest  agreed  on,  which  is  usually  at  a  high  rate 
corresponding  to  the  risk.    The  contract  may  be  by  a  bottomry 

bill,  or  bond. 

Boycott.  To  combine  to  abstain  from  or  to  prevent  social  or  busi- 
ness relations  with  a  trades  person,  landlord,  etc. 

Breach  of  Covenant.    A  violation  of  some  agreement  in  a  deed. 

Brokerage.    The  compensation  of  a  broker;  the  occupation  of  a 

broker. 
Burglary.    A  breaking  or  entering  of  a  dwelling  in  the  night-time 

with  the  intent  to  commit  a  felony. 


830 


APPENDIX 


Capacity.    The  legal  ability  to  sue  and  be  sued;  to  contract,  etc. 

Capital.    The  principal  invested  in  a  business. 

Capital  Stock.  A  sum  divided  into  shares,  which  is  raised  by  sub- 
scription of  the  members  of  a  corporation  and  upon  which  calls 
and  dividends  are  based. 

Capitation  Tax.    A  tax  paid  by  everyone  in  a  community;  a  poll 

tax. 
Cargo.    The  entire  load  of  a  vessel  excluding  passengers. 
Causa  Mortis.    A  gift  made  in  prospect  of  death,  and  revocable 

any  time  before  death. 
Caveat  Emptor.    Let  the  buyer  beware;  caveat  venditor,  let  the 

seller  beware;  caveat  viator,  let  the  traveler  beware. 
Cede.     To  assign  or  transfer. 
Certified  Check.    A  check  stamped  by  a  bank  signifying  that  the 

bank  assumes  the  obligation  originally  taken  by  the  drawer  of 

the  check  and  promises  to  pay  the  sum  called  for  in  the  check. 
Cestui  Que.  Trust.    The  person  who  has  an  equitable  or  beneficial 

right  to  property;  a  beneficiary. 
Chancery.    Equity. 
Charter  Party.    A  written  contract  by  which  the  owner  of  a  ship 

hires  it  out  to  another  party  for  a  specified  time. 
Chattels.     Personal  property  and  real  property,  i.e.,  leases  and  in- 
terests in  land  which  are  less  than  a  freehold. 
Chose-in-action.    The  right  to  a  debt,  or  sum  of  money  recoverable 

in  a  suit  at  law. 
Citation.    A  summons  to  appear  before  a  court;  used  particularly 

in  the  probate  court. 
Civil.    That  which  pertains  to  a  city  or  state ;  man  in  relation  to  his 

fellow  men. 

Codicil.  An  additional  clause  added  to  a  will  after  the  will  has 
been  signed,  sealed,  and  witnessed.  It  must  be  signed  and  wit- 
nessed as  formally  as  the  will. 

Collateral  Security.  Property  transferred  by  the  owner  to  an- 
other to  secure  the  carrying  out  of  an  obligation. 

Company.  A  combination  of  individuals  for  the  purpose  of  carrying 
on  a  business  or  enterprise,  whether  incorporated  or  not. 

Compos  Mentis.    Sound  of  mind  or  capable  of  doing  acts. 

Composition.  An  agreement  between  debtor  and  creditor  that  the 
creditor  will  take  a  certain  amount  in  full  settlement  of  the 
whole  debt. 


GLOSSARY 


831 


Condonation.  The  pardoning  of  an  offense  against  the  marriage 
relation  by  which  it  is  prevented  from  being  made  a  cause  of 
action  at  a  later  period. 

Conflict  of  Laws.  The  difference  and  variations  of  laws  as  be- 
tween states  or  countries  in  regard  to  the  subject  matter  of 

some  case. 

Connivance.  Aiding  in  a  crime,  the  knowledge  of  a  crime.  Used 
particularly  in  domestic  relations,  the  consent  by  a  husband  or  a 
wife  to  the  adultery  of  the  other  in  order  to  procure  a  divorce. 

Consanguinity.  The  relationship  of  persons  descended  from  a  com- 
mon ancestor. 

Consign.  The  sending  of  goods  to  a  buyer  or  to  an  agent  to  sell. 
The  sender  is  the  consignor,  the  receiver  the  consignee,  and  the 
goods  the  consignment. 

Consummation.    The  completion  or  finish  of  some  act. 

Contingent.  That  which  depends  upon  some  happening  or  occur- 
rence; doubtful,  conditional. 

Contumacy.     The  refusal  to  swear  in  court  when  ordered  to  do  so. 

Conversion.  The  wrongful  taking  or  using  of  property  belonging 
to  another. 

Corporation.  An  artificial  person  or  group  of  persons  combined  by 
legal  right  for  the  purpose  of  carrying  on  a  business  indefinitely. 

Corporeal.     A  material  thing. 

Curtesy.    The  husband's  esUte  in  the  wife's  property  after  her 

death. 
De  Bonis  Non.    An  administrator  de  bonis  non  is  one  who  takes 

charge  of  any  property  not  executed  or  settled  by  a  previous 

administrator  whose  place  he  is  taking. 
Dead  Freight.     The  part  left  empty  in  a  ship  chartered  by  a  person 

who  has  cargo  enough  for  only  a  part  of  the  ship. 
Debenture.    A  sealed  instrument  given  by  a  company  as  a  security 

for  a  loan. 
Decree.    The  order  made  by  a  court  of  equity. 

Delivery.    The  act  of  transferring  possession  from  one  to  another. 
Demurrage.    The  act  of  detaining  a  ship;  an  allowance  made  by  the 

freighter  to  the  owners  of  a  ship   for  detaining  the  ship  in 

port  longer  than  the  period  agreed  upon. 
Derivative  Conveyance.    A  secondary  deed  to  confirm  or  alter  a 

former  deed. 


Sja 


APPENDIX 


\ 


Descent.    A  method  of  acquiring  real  property.     The  vesting  of 

title  to  the  real  property  of  an  intestate  in  his  heirs. 
Deviation.    The  act  by  which  a  ship  departs  from  her  usual  course. 

Such  an  act  will  invalidate  the  insurance. 
Devise.    Usually  a  gift  of  real  property  by  will;  also  used  sometimes 

for  personal  property. 
Discharge.    The  order  of  a  court  which  will  release  a  bankrupt 

from  his  debts. 
Disclaimer.    A  formal  instrument  made  by  a  patentee  renouncing 

part  of  his  patent. 
Divorce.    A  severing  of  the  marriage  tie.    It  may  be  absolute,  per- 
mitting the  parties  to  marry;  or  a  separation,  which  does  not. 
Domestic.    Relating  to  the  family  and  those  who  live  with  or  serve 

the  family. 
Donee.    One  who  receives  a  gift. 
Donor.    One  who  gives  a  gift. 
DowER.    The  right  of  a  wife  after  her  husband*s  death  in  one-third 

of  all  the  lands  owned  by  her  husband  during  the  marriage  state. 
Duress.    The  forcing  of  a  person  by  words  or  acts  to  perform  some 

act 
Ear  Witness.    A  witness  who  testifies  as  to  what  he  himself  heard. 
Easement.    A  right  of  way  over  another's  land,  air,  light,  water, 

and  support,  given  by  the  owner  of  that  land. 
Ejectment.    A  putting  out  of  possession  of  a  tenant  by  a  landlord 

or  the  voluntary  leaving  of  the  property  by  a  tenant  through 

some  act  or  omission  on  the  part  of  the  landlord  or  janitor. 
Emblements.    Growing  crops.    It  applies  only  to  crops  raised  each 

year  or  those  cared  for  by  a  tenant. 
Eminent  Domain.    A  right  which  the  government  has  over  the  real 

property  of  individuals  to  take  it  for  some  public  use,  paying  for 

it  reasonable  value. 
Escrow.    A  sealed  instrument  given  by  one  party  to  another  to 

deliver  to  a  third  person  when  that  third  person  performs  a 

certain  act  or  acts.     It  is  not  in  force  until  delivered  to  that 

thjrd  party. 
Estoppel.    The  act  of  stopping  a  person  from  denying  something 

which  he  has  already  affirmed. 
Executed  Contract.    One  which  has  been  completed  by  the  actions 

of  both  parties. 


^^ 


GLOSSARY 


833 


Executor.  One  appointed  by  the  terms  of  a  will  to  carry  out  the 
provisions  of  that  will. 

Executory.  A  contract  which  has  not  yet  been  completed  or  which 
requires  something  to  be  done  or  to  happen  before  it  will  be 
executed. 

Extinguishment.  The  destruction  of  a  right  by  satisfaction  or  by 
the  acquisition  of  another  right  which  is  greater. 

Extradition.  The  surrender  of  a  criminal  by  one  state  to  another 
or  by  one  country  to  another  for  tlie  purpose  of  trying  and 
punishing  him  in  the  place  in  which  he  committed  the  crime. 

Eye-witness.  One  giving  evidence  as  to  something  which  he  has 
himself  seen. 

Facsimile.    An  exact  copy. 

Factor.  An  agent  employed  to  sell  merchandise,  delivered  to  him 
by  the  principal  for  a  compensation  called  a  "factorage"  or 
"commission." 

False  Pretences.  A  statement  which  is  not  true,  made  for  the  pur- 
pose of  selling  goods,  obtaining  money,  etc. 

Fee.  An  estate  of  inheritance.  It  is  divided  into  three  kinds: 
(i)  fee  simple,  an  absolute  estate  of  inheritance;  (2)  qualified 
or  limited  estate,  and  (3)  fee  tail,  an  inherited  estate  limited 
to  one  person  and  the  heirs  of  his  body. 

Felony.  Any  crime  greater  than  a  misdemeanor  which  may  be 
punishable  by  death  or  penal  servitude. 

Fixture.  An  article  of  personal  property,  which  through  annexa- 
tion to  land  or  building  becomes  real  property. 

Flotsam  or  Floatsam.     Goods  thrown  overboard,  which  float. 

Foreclosure.  An  equitable  proceeding  by  w'-ich  a  mortgagor  is 
banned  from  the  redemption  of  his  property  and  thereby  loses 
it  forever. 

Forgery.  The  false  making  or  alteration  of  an  instrument,  which 
purports  on  the  face  of  it  to  be  good  for  the  purposes  for  which 
it  was  created;  the  false  or  unauthorized  signature  of  a  docu- 
ment with  a  design  to  defraud. 

Franchise.  A  privilege  or  liberty  given  by  the  government  to  cer- 
tain individuals. 

Frank.  Free;  the  privilege  given  by  the  government  to  senators 
and  representatives  and  certain  other  individuals  of  sending  mail 
without  postage. 


I 


834 


APPENDIX 


GLOSSARY 


83s 


FiBiGHT.    Goods  in  the  process  of  being  transported  from  one  place 

to  another. 
Fructus  Industriales.    Crops  grown  through  the  labors  of  man. 

Fructus  naturales,  crops  growing  of  themselves  from  year  to 

year. 
Garnishee.    A  person  warned,  at  the  suit  of  a  creditor  plaintiff,  not 

to  pay  money  which  he  owes  to,  or  to  deliver  over  property 

which  belongs  to,  the  defendant,  because  he  is  indebted  to  the 

plaintiff. 
General  Average.    Where  a  loss  has  been  incurred  for  the  benefit 

of  all  on  board,  the  owners  of  the  ship  and  all  having  cargo 

thereon   contribute   proportionately   toward   making   good   the 

loss. 

Good-will.  The  benefit  acquired  by  a  business  beyond  the  value  of 
the  stock  employed  in  it,  in  consequence  of  its  having  a  body 
of  regular  customers  and  a  general  reputation. 

Grand  Larceny.  In  New  York  State  grand  larceny  of  the  first 
degree  constitutes  the  taking  of  property  of  over  $500  at  any 
time;  second  degree,  the  taking  of  property  of  the  value  of  more 
than  $50  and  less  than  $500;  petty  larceny,  the  taking  of  anything 
less  than  $50.  If  the  property  is  taken  from  the  person  of 
another  in  the  night-time,  no  matter  what  the  value  taken,  the 
crime  is  grand  larceny  of  the  first  degree.  While  if  it  be  taken 
in  the  daytime  the  crime  will  be  second  degree  no  matter  what 
the  value  of  the  goods. 

Gratuitous,    Without  consideration. 

Gross  Average,  That  which  falls  on  a  ship,  freight,  and  cargo  as 
distinguished  from  particular  average. 

Guaranty  or  Guarantee,  A  promise  to  another  that  the  promisor 
will  be  responsible  for  the  payment  of  a  certain  sum  if  the  other 
cannot  collect  it  from  the  debtor. 

Guardian.  One  controlling  the  person  and  property  of  another  who 
n  mcapable  of  managing  his  affairs  for  himself,  as  an  infant  or 
an  insane  person. 

Habeas  Corpus.  A  writ  which  orders  a  person  detaining  another  to 
bring  that  person  into  court. 

Hearsay  Evidence.  The  evidence  of  a  witness  which  he  obtained 
from  another,  in  contradistinction  to  ear  and  eye  witnesses. 

Heir.  One  who  succeeds  by  descent  to  an  estate  in-  land  or  would 
have  succeeded  had  his  ancestor  died  intestate. 


Hereditaments.  Every  sort  of  inheritable  property,  such  as  cor- 
poreal, incorporeal,  real,  personal,  and  mixed. 

Holding  Over.  The  keeping  of  possession  of  property  by  a  tenant 
after  the  expiration  of  the  lease. 

Holograph,  A  will  or  other  instrument  written  entirely  in  the  hand- 
writing of  the  maker  of  the  will. 

Homicide.  The  killing  of  one  person  by  another.  It  is  either  ex- 
cusable as  where  committed  by  accident,  or  justifiable,  as  where 
committed  in  full  knowledge  of  the  act  but  under  such  circum- 
stances that  it  became  necessary  to  kill  the  other;  or  felonious, 
where  it  is  committed  knowingly  and  wilfully  with  the  intent 
and  desire  to  kill. 

Hush-money,  Money  given  as  a  bribe  to  keep  another  from  giving 
some  certain  information. 

Idem.    The  same. 

Illicit.    Unlawful. 

Illusory.    Having  a  false  appearance,  deceptive. 

Immaterial  Evidence.  Evidence  which  does  not  apply  to  the  point 
at  issue. 

Impeach.    To  charge  with  misconduct  an  official  of  the  government. 

Inalienable.    That  which  cannot  be  transferred. 

Incendiary.    A  person  who  wilfully  sets  fire  to  a  building. 

Incorporeal,  That  which  is  not  material;  intangible;  unable  to  be 
handled,  seen,  or  heard;  invisible. 

Incumbrance.  Any  liability  attached  to  property,  as  a  judgment, 
mortgage,  etc. 

Indenture.    A  deed  between  two  or  more  parties. 

Ingress.  The  right  of  the  lessee  to  enter,  to  go  upon  the  land  which 
he  has  leased. 

Injunction.  An  order  from  a  court  forbidding  the  performance  of 
a  certain  act  or  acts. 

Inquest.  An  investigation  by  the  coroner  as  to  the  cause  of  the 
death  of  a  person. 

Insurance.  The  act  of  providing  against  a  possible  loss,  by  enter- 
ing into  a  contract  with  another,  who  is  willing  to  make  good 
such  a  loss  if  it  occurs. 

Interpolate.    To  insert  words  in  a  completed  document. 

Interrogatories.  Written  questions  by  one  party  addressed  to  an- 
other before  the  trial  of  a  case  and  which  questions  must  be 
answered  in  writing. 


h 


836 


APPENDIX 


GLOSSARY 


837 


Jetsam.  Jetsam  is  where  goods  are  cast  into  the  sea,  and  there 
sink  and  remain  under  water. 

Jettison.  The  throwing  of  part  of  a  cargo  overboard  in  order  to 
lighten  a  ship. 

Joint  Tenants.  The  owning  by  two  or  more  persons  of  a  piece  of 
property;  upon  the  death  of  one  the  share  owned  by  him  passes 
to  the  survivors. 

Joint-Stock  Company.  A  sort  of  partnership  granted  by  some  of 
our  states  and  England,  which  has  some  of  the  powers  of  a 
corporation. 

Judgment  Debtor.  One  against  whom  a  judgment  of  the  court 
ordering  him  to  pay  his  debt  is  unsatisfied. 

Jurisdiction.  The  district  over  which  the  right  of  a  court  exists 
to  hear  a  certain  case. 

Justice  op  the  Peace.  A  justice  of  the  peace  is  a  judicial  officer 
of  an  inferior  local  court  with  jurisdiction  in  civil  cases  where 
the  amounts  involved  are  small  and  in  criminal  cases  of  misde- 
meanors and  petty  crimes.  To  become  a  justice  of  the  peace 
a  person  must  be  a  citizen  of  the  United  States  and  of  the  state 
in  which  he  is  elected  or  appointed.  A  minor  is  not  qualified 
to  hold  the  office.  Women  have  been  held  not  eligible  to  the 
office.  He  has  no  jurisdiction  where  the  maximum  penalty  for  the 
offense  alleged  is  greater  than  such  officer  is  authorized  to 
impose.  The  test  is  the  maximum  penalty  which  may  be  im- 
posed. If  no  limit  is  fixed  to  the  penalty,  a  justice  will  not 
have  jurisdiction  to  try  the  offense.  A  justice  may  not  act 
where  he  has  an  interest  in  the  suit,  according  to  the  old  maxim, 
"No  man  can  be  a  judge  in  his  own  cause." 

Keelage.    Money  paid  by  vessels  remaining  in  a  harbor. 

Kin  or  Kindred.    Relation  by  blood,  or  consanguinity. 

Kleptomania.    The  desire  to  steal ;  a  form  of  insanity. 

Last  Resort.    A  court  from  which  there  can  be  no  appeal. 

Law-Merchant.  A  part  of  the  law  of  the  land  as  regards  commer- 
cial usages  and  the  transactions  of  merchants,  mariners,  etc. 

Leasc  a  conveyance  of  the  right  of  possession  of  certain  property 
for  a  certain  period. 

Legacy.    A  gift  of  personal  property  made  by  will. 

Letters  Testamentary.  An  instrument  given  by  a  court  to  a  person 
named  as  executor  in  a  will  to  proceed  with  administration  of 
the  estate. 


Lex  Loci.    The  law  of  the  place  where  a  contract  is  made  or  an  act 

performed. 
Libel.    Defamatory  writing.    Any  sort  of  published  matter  that  will 

hurt  or  degrade  the  person  about  whom  it  is  written,  assuming 

of  course  that  what  is  written  is  not  true.     See  "Slander." 
Lien.    The  right  of  a  person  to  keep  what  is  in  his  possession  be- 
longing to  another  until  that  other  pays  what  is  due. 
Lineal.    In  a  direct  line. 
Liquidated  Damages.    Damages  which  parties  to  a  contract  agree 

shall  be  paid  in  case  of  a  breach  of  contract. 
Lis  Pendens.    A  suit  or  action  that  is  pending. 
Litigant.    A  person  engaged  in  a  lawsuit 
Locus  SiGiLLi  (L.S.).    The  place  of  the  seal. 
Malum  in  se.    Wrong  because  immoral. 
Malum  Prohibitum.    Wrong  because  forbidden  by  statute. 
Mandamus.    We  command.    An  order  by  court  to  some  person,  sole 

or  corporate,  to  do  some  act  which  is  specified  in  the  order. 
Mandate.    A  judicial  order. 
Manslaughter.    A  killing  of  another  without  intent,  or  with  intent 

but  on  the  spur  of  the  moment  through  some  great  provocation 

given  by  the  deceased. 
Mercantile  Law.    The  law  which  deals  with  matters  pertaining  to 

trade  affairs. 
Metes  and  Bounds.    The  boundary  lines  of  land,  with  distances, 

terminal  points,  and  angles. 
Mitigation.    The  lessening  of  damages  or  of  punishment. 
Morganatic  Marriage.     The  lawful  marriage  of  a  man  of  royal 

birth  with  a  woman  who  is  not,  upon  the  condition  that  the  one 

of  inferior  birth  will  not  partake  of  the  titles,  dignity,  or  arms 

of  the  husband. 
Murder.    The  wilful  killing  of  another. 
Mutual  Testament.    Wills  made  by  two  persons,  each  leaving  his 

property  to  the  other  if  that  other  survives. 
Neat  Cattle.     Bovine  cattle  (oxen  and  heifers)  collectively. 
Next  of  Kin.    "Those  related  by  blood  who  would  take  personal 

estate  of  one  who  dies  intestate"  (Joseph's  Surrogate  Practice, 

page  96).    First,  children,  and  then  descendants;  second,  father; 

third,  mother  and  brothers  and  sisters;  and  fourth,  collateral 

relatives. 
Night.    The  time  between  sunset  and  sunrise. 


838 


APPENDIX 


Nolens  Volens.    Willing  or  unwilling. 

Nominal  Damages.  The  smallest  degree  of  damages  awarded,  six 
cents. 

NoN  Compos  Mentis.    Not  of  sound  mind. 

Notary  Public.  An  officer  whose  function  is  to  attest  and  certify 
by  his  hand  and  official  seal  various  instruments,  in  order  to 
give  to  them  authenticity  in  other  jurisdictions;  to  take  acknowl- 
edgments and  certify  the  same,  and  to  perform  other  official  acts, 
the  power  to  do  which  is  conferred  by  law.  In  order  to  become 
a  notary  public,  a  person  must  be  a  citizen  of  the  United  States. 
Minors  arc  eligible,  unless  barred  by  constitutional  or  statutory 
provision.  Women  are  eligible  in  many  states,  among  them 
New  York  and  New  Jersey.  A  notary  is  empowered  to  ad- 
minister oaths,  take  affidavits,  take  depositions,  and  the  acknowl- 
edgment of  creditors  in  bankruptcy  proceedings. 

Nuisance.    Something  offensive;  annoying. 

Nuncupative  Will.  A  will  made  by  word  of  mouth  before  some- 
one else  and  afterwards  written  out 

Obiter  Dictum.  An  opinion  of  a  judge  and  so  not  of  as  great 
weight  as  a  judgment  rendered. 

Olograph.  An  instrument  written  entirely  in  the  hand  of  the  one 
signing  it. 

Pendente  Lite.    While  the  suit  is  pending. 

Per  Autre  Vie.    For  another's  life. 

Perjury.    A  false  statement  made  while  under  oath. 

Polygamy.    A  plurality  of  wives. 

Power  of  Attorney.    A  formal  sealed  authority  to  an  agent. 

Prima  Facie.  Evidence  which  if  not  refuted  or  disproved  will  pre- 
vail. 

Primage.  The  usual  duty  paid  by  a  consignee  to  the  master  and 
sailors  of  a  ship  or  vessel. 

Prosecutor.  One  bringing  a  suit  against  another  in  the  name  of 
the  government. 

Puffer.  One  who  under  an  arrangement  writh  an  auctioneer  attends 
the  auction  and  bids  in  order  to  raise  the  prices. 

Quash.    To  discharge  an  action. 

Quasi.    Like;  as  if;  almost. 

Quorum.  The  minimum  of  persons  needed  to  be  present  at  a  meet- 
ing in  order  to  conduct  business  or  elections,  etc. 


GLOSSARY 


«39 


Rebate.  A  discount  or  reduction  of  the  amount  of  a  pa3rment  in 
consideration  of  its  being  made  before  it  falls  due. 

Receiver.  A  person  appointed  by  a  court  to  take  into  his  custody, 
control,  and  management,  the  property  or  funds  of  another  pend- 
ing judicial  action  concerning  them.  He  is  an  officer  of  the 
court,  represents  it,  and  any  interference  with  his  work  will 
be  punished  as  contempt. 

Recognizance.  An  obligation  of  record,  to  do  some  particular  act, 
as  to  pay  a  debt,  or  keep  the  peace,  or  to  appear  in  court. 

Recourse.  The  right  by  the  holder  of  a  note  to  look  to  the  previous 
indorser  to  pay  the  amount  set  forth  in  the  note. 

Recoupment.  The  right  of  a  defendant  to  set  up  a  claim  for 
damages  against  the  plaintiff  at  the  same  action,  because  of  his 
violation  of  an  obligation  owing  on  the  contract  on  which  he 
sues,  or  for  some  failure  of  consideration. 

Referee.  A  person  to  whom  an  issue  or  question  of  fact  arising 
in  a  cause  has  been  sent  by  order  of  a  court  for  trial  or  ex- 
amination. 

Relevancy.  The  degree  of  connection  of  evidence  to  the  point  at 
issue. 

Remainder.  The  portion  or  residue  of  an  estate  which  will  pass 
to  the  remainderman  upon  the  termination  of  such  particular 
estate. 

Replevin.  An  action  to  recover  possession  of  property  wrongfully 
taken. 

Residuary.    Pertaining  to  the  residue  of  an  estate  after  settlement. 

Respondentia.  A  loan  of  money  with  the  payment  of  interest  on 
goods  on  a  ship.  If  the  goods  are  lost  the  money  will  not  be 
repaid. 

Reversion.  The  residue  of  an  estate  left  after  the  granting  of  part 
of  it  to  another  by  the  grantor. 

Riparian  Owner.  One  who  has  rights  to  the  banks  of  a  river  or 
waterway. 

SS.  Scilicet  {scire  licet);  to  wit;  namely. 

Seal.  An  impression  upon  wax,  paper,  etc.,  in  order  to  authenticate 
any  document  to  which  it  is  attached ;  or  a  metal  die  with  which 
an  imprint  is  made  on  the  document. 

Sequestration.  A  process  of  taking  certain  rents  and  personal 
property  of  a  person  in  contempt  of  an  order  of  a  court. 


840 


APPENDIX 


Slander.    A  defamatory  statement  in  the  presence  of  one  or  more 

people  about  a  third  person  either  present  or  in  some  other 

place. 
Specialty.    A  written,  sealed,  and  delivered  instrument. 
Squatter.     One  settling  on  the  land  of  another  without  legal  au- 
thority.   Possession,  undisturbed,  for  twenty  years,  by  a  squatter 

will  give  him  the  right  of  ownership  even  as  against  the  former 

owner. 
Subsidiary  Laws.    Laws  of  lesser  importance,  such  as  those  issued 

by  boards  of  health,  building  boards,  school  authorities,  etc. 
Tangible.    That  which  may  be  handled,  seen,  etc. 
Tax,  Poll.    A  tax  levied  on  every  person,  whether  a  citizen  or  an 

alien,  in  every  county  to  pay  for  schools. 
Tenancy  in  Common.    A  holding  by  two  or  more  persons  of  a  piece 

of  property.    Upon  the  death  of  one,  the  deceased's  share  goes 

to  his  heirs  and  not  to  the  other  tenants  as  in  joint  tenancy. 
Tonnage.    The  carrying  capacity  of  a  ship. 
Trover.     An  action  against  another  for  the  wrongful  detention  of 

property. 
Ultra  Vires.    Beyond  the  powers  of;  applied  to  the  acts  of  directors 

of  a  corporation  when  beyond  the  power  of  the  charter  of  that 

corporation. 
Unilateral  Contract.     A  contract  where  only  one  promise  is  to 

be  performed. 
Utter.    To  offer,  publish;  to  attempt  to  pass  counterfeit  money  or 

forged  notes,  etc. 
Venue.    The  place,  the  county  where  an  action  is  done. 
Vi  et  Arm  is.    With  force  and  arms.    Used  in  writs  of  trespass. 
Void.    Destitute  of  legal  effect. 
Voidable.     Not  void  unless  made  so  by  disaffirmance,  or  a  decree 

of  a  court. 
Waive.    To  give  up;  to  forego  a  right. 
Ward,     An  infant  under  the  guardianship  of  a  person  other  than 

its  parents. 
Waste.    The  spoiling  or  destruction  of  real  property  by  one  capable 

oi  committing  waste,  such  as  a  tenant  for  life  or  for  years. 


INDEX 


[References  are  to  pages.    Page  numbers  below  424  will  be  found  in 
volume  I ;    those  above  424,  in  volume  ILl 


Acciftancc  (See  also  "Negotiable  instru- 
ments, bills  of  exchange") 
Agreement, 

By  mail  or  telegraph,  49 
Manner  of,  50 
Bank,   250 

Domestic,   250 

Form,  779 

Bills  of  exchange, 

Discount,    rules    for,   152,   253 
Effect  of,   248 
Mode  of,  248 
Presentment   for,   254 
Protest    for    non-acceptance,    aS4 
Qualified  acceptance,  248 
Contract  of  suretyship,   560 
Discount  of,  rules  for,  252,  2$$ 
Dollar,   249 
Qualified.  248 
Trade,  251 
Form,   780 
Functions    of,    A52 
Acceptor    of    Negotiable    Instruments, 

248 
Accident  Insurance,  292 
Accidents,    331     (See    also    "Workmen's 

compensation   acts") 
Accommodation  Signer,  Liability  of,  231 
Accord  and   Satisfaction,   572 
Accounts, 

Equitable     jurisdiction     in     regard     to 

debts,  573 
Open,  570 
Stated,  570 
Actions  (See  "Suits") 
Act  of  God,  629 

Effect  on  contracts,  88 
Adamson  Railroad  Wage  Law,  9 


Administrator, 

Advertising  for  claims,  513 
Appointment  of,   509 
Caring  for  funds,  514 
Cum  testamento  annexo,  508 
De  bonis   non,   511 
Duties  of,   514 
Inventory,  512 

Letters  of  administration,  512 
Paying  legacies,  514 
Pendente  lite,  507 
Procedure,   512 
Settlement  without,   509 
Admissions,  Rules  of  Evidence,  108 
Adulterated  Goods,   Contracts  for  th« 

Sale  of,  47 
Advertisements,  Auction,   159 
Advertising,   Deceptive,  671 
Affidavit,   Conditional  Sales,    134 
Agency,  165-210 

Forms,  767-772 
Agent, 

Acting   in   good    faith,    200 

Apparent  and  actual  authority,  183 

Apparent  authority,    198 

Appointment  of,   173 

Auctioneers,    160 

Bankruptcy  of,  209 

Capacity  to  be,   167 

Care,   skill   and   diligence,    193 

Contract    with    commission    merchant 
need  not  be  in  writing,    171 

Corporations,   173 

Custody    of   funds. 

Definition  of,   165 

Del  credere,  171 

Duty   to   principal. 

Duty  to  third  party,   195 

Estoppel,   effect   of,    175 

Express  appointment,    174 

Fraudulent   conduct  of,    197 


193 


188 


841 


S42 


INDEX 


Agency — Continuti 
Agent — Continued 

General,  authority  of,   i68 

Form,  767 
Illegal  acts,  liable  to  prosecution  for, 

180 
Implied  appointment,  175 
Insanity,  208 
Liability  of,   198 
Limitation  of  authority,   196 
Most  be  of  good  habits,  19a 
Must  not  act  for  both  parties,  191 
Must   not  act   for   himself,    191 
Must  not  compete  with  principal,  192 
Must  not  reveal  confidential  matters, 

188 
Non-payment  no  excuse  for  non-per- 
formance,   192 
Not  protected  by  fact  of  agency,  197 
Obedience,    189 
Power  of  attorney,  173 

Forms,  768,  769 
Proxy   of,    173 

Katification   by    principal,    176 
Representing    an    irresponsible    body, 

199 

Servants   and   employees,    179 

Signature  of,  194 

Special,  authority  of,  169 
Form,  7^7 

Snbagents.  appointment  of,  178         , 

Who  is  qualified   to  be,    167 

Wife   as,    175 

With  an  interest,  209 

Without  specified  powers,  174 
Appointment   of   agent,    173 
By  estoppel,  175 
California  Code,  166 
Contract  of,   173 
Definitions,    1 65 
General  agent,   168 

Form,  767 
Illegal   contracts   of,    179 
Liability  of. 

Agent,   198 

Principal.  184 
Oral  contracts,  173 
Partners,  340,  361 
Principal, 

Bankruptcy  of.  209 

Capacity  to  appoint  agent,  166 

Death  of,  207 

Definition  of,  165 

Duty  to  agent.   182 

Duty  to   third  parties,   183 


Agincy — Continued 
Principal — Continued 

Illegal  acts,  liable  to  prosecution,  180 

Insanity  of,  208  • 

Liability  of,    184 

Undisclosed,    185 

Who  are  qualified  to  be,  166 
Proxies,   173,  771 

Forms,  770,  771 
Ratification.    176 
Revocation  of  power  of  attorney,  907, 

Form,  770 
Sealed  contracts,   177 
Servants  and  employees,   179 
Signature  of  agent,  194 
Special  agent,   169 

Form,   767 
Subagents,  appointment  of,   178 
Termination  of, 

Agent    may    sue    if    revoked    without 
cause,  206 

Agent   with  an  interest,   209 

By  agent's  renouncing,  206 

By  either  party.   205 

Death  of  agent  or  principal,  208 

Destruction   of  subject  matter,  206 

Disability,  207,  208 

Expiration   of   period  contracted   for, 
205 

Fulfilment,  205 

Notice   of  revocation,   207 
Third  party. 

Duty   of  agent   to,    195 

Duty  of  principal  to,  183 

Relation  to  agent,  20a 

Relation   to   principal,  304 
Undisclosed   principal,    i8s 
Void  contracts  of,   179 
Written  contracts  of,    173 
Agent  (See  "Agency,  agent") 
AcKiEMENTS  (See  also  Contracts) 
Arbitration,    703 
Parties  to  a  contract,  42,   123 
To  rescind  contract,  86 
Alienation.   273 
Alimony,  544 
Alteeation, 
Contracts,  74 

Filling  in  blanks,  75 

Negotiable  instruments,  J4S 

New  agreement,  74 
Amendments, 
By-laws.  399 
Charter,  389 
Constitutional,  11 


INDEX 


843 


Ambkican  B*«  Amociatiow,  Rwpoet  of, 

717 
Annulment  of  Maexiage,  535 

Anti-Teust  Law,  8 

Apfeals  to  Highee  Couet,  29 

Affointment, 

Administrators  and  executors,  so7 
Agents,  173 
Subagents,   178 
Aebiteation, 

Advantages  of,  701 
Agreement  for,  703 
Form,  820 
Provisions   of,   703 
Arbitrators, 

Decision  of,  703 
Selection  of,  703 
Award, 

Enforcing,   705 
Setting  aside,   706 
Signing,   705 
Death  of  arbitrator,   70s 
Hearings,   70s 
Objections  to,  701 
Parties  to, 

Corporation,  704 
Partnership,    704 
Statutory,   702 
Withdrawal  from,  704 
Death  of  arbitrator,  705 

AXTICLES  OF   COMFEDEEATION,    5 

Assignee, 

Bankruptcy,  594 
Contract,  80 

AaSIGNMENT, 

Acknowledgment,  761 
Bankruptcy,    591 — 597 
Contract,    79 
Form,   760 

Actions  on,    103 

Liabilities  of  assignee,   80 

Rights  of  assignee,  80 
Assignment  foe  Benefit  of  Ceeditoes, 
Assignee,  duties  and  rights  of,  594 
Creditors,  rights  of,  593 
Debtor,   rights  of,   592 
Form  of,  595 
General,  592 
Partial,   592 
Revocation,  595 
Special,  592 

Statutory  provisions  of,  S95 
Void,  593 
Voluntary,   59* 
Assignments  of  Patents,  649 


ASSUMFTION   OF  RiSK,   DOCTEINE  OF,   325 

Attachment,  Debtob's  Ptoferty,  580 
Attestation  Clause,  749 
Attoeney   (See  "Legal  profession") 
Power  of,   173 
Forms,  768,  769 
Auctioneer,  Duties  of,  as  Agent,  160 
Auctions,     * 

Bids,  159 

Compliance  with  conditions,   IS9 
Duties  of  auctioneer,  160 
Regulations   for   sales   at,    159 

AtJTHORITY, 

Apparent,  of  agent,  198 

Appointment  of  agent,  173 

Limitation    of    agents',    183,    196 

Termination  of  agents',  205 

Under  seal,   173 
Automobile  Insurance,  295 
Average,    General,    Marine    Insurance, 

291 
Average,  Particular,  Marine  Insurance, 

291 

B 

Bailee  (See  "Bailments") 
Bailments,  619-628 
Bailee,  619 

Duties  of,  635 

Proprietors  of  shops,  duties  of,  6j< 

Rights  of,  625 

Warehouseman,  duties  of,  626 

Wrongful  use  of  property,  625 
Bailor,  619 

Common   carriers    (See    "Common   car- 
riers") 
Contract  of,  623 

Custody,  services,  or  transport,  6as 
Definition  of,  619 
Deposit,  620 
Dissolution  of,   627 
For  benefit  of  both  parties,  619 
For  benefit  of  one  party,  619 
Gratuitous.  619 
Hiring  of  a  chattel,  6ja 
Kinds  of,  619 
Loan    (commodatum),   621 
Mandate,  620 

Methods  of  terminating.  627 
Pledge  or  pawn,  621 

"Collateral   security."  621 
Delivery,  621 
Property    rights,    624 
Summary  of,  619,  620 
Termination  of,  627 


844 


INDEX 


i 
1 


Baiu»  (See  "Bailmenu") 
Baksi,  Waltu»  &  Co..  668 
Baldwin.     Simjom     £..     excerpt     from 
"The  Young  Man  and  the  Law,"  7^4 
Bmmk   Accbptancks    (Sec    "Acceptance") 
Bjuib   Chicks    (See    "Negotiable   instru> 

ments,  check") 
BAHKmarrcy.  591*615 
Alter  tntolvency,  $9^ 
Alien  in.  600 

Auignment    for    benefit    of    creditors. 
591-597   (See   ''Assignment  for  bene- 
fit of  creditors") 
Bankruptcy  Act,  600 
Bankrupts, 
Duties  of.  610 
Ril^ita  of,  610 
Claims,  priority  of,  609 
Corporation  in,  600 
Creditors, 

Advantage  to.  599 
Oaims,   filing   date.  606 
Compromise.    606 
Defrauded,  rights  of,  607 
Having  security.  righ:s  of,  6o< 
Preferred,  611 
Rights  of,   59J 
Debtors, 
Advantage  to,  599 
Ki^ts  of,  59-2 
Discharge  in.  613-615 
Partial  payment  will  not  revive  entire 

ddit.  614 
Time  to  ask  for,  613 
Trustee  may  object.  613 
What  debts  remain  undischarged,  614 
Dividends  declared  by  trustee.  609 
Insolvency.   596 
Involuntary,   601  , 

Procedure  for,   601 
Kequirements  for.  601 
Laws,  Congressional.  599 
Minor  in,  600 
nature  of,   599 
Partnership  in,  600 
Persons   who   may  become   involuntary 

bankrupts,  602 
Persons    who    may    bring    proceedings 

in,'  601 
Petition  in,  600 
Priority  of  claims.  609 
Proceedings,   how   instituted,    604 
Jteceiver, 

Duties  of.  607 
Rights  of.  607 


Ban  KavrrcY — Contmuid 
Receivership,  598 
Referee,  604 
Trustee, 

Duties  of,  608 
Election   of,    605 
Rights  of,  608 
Voluntary,  procedure  for.  600 
Banks,    Interest   on    Loans.    Rate    Psa* 

MiTTEo,   585    (See  also   "Interest") 
Baatn,  121   (See  also  "Sales") 
Bkakei,  Payable  to.  Negotiable  Instiu« 

MENTS,     217 
BXLL    TELErUONB.    652 

BBNBJticiABY    (See    also   "Will,"    "insur- 
ance") 
Death  of,  493 

Life  insurance,  right  to  change  benefi- 
ciary. 285 
Bill  in  Equity.  28 
BlU.  OF   Exchange   (See  "Negotiable  ln> 

struments,  bills  of  exchange") 
Bill  or   Lading, 
Form,  814-818 
"Qean"  bill.  632 
Nature  of.  631 
Negotiable  instrument.  632 
Quasi-negotiable,  632 
Ship's,  usually  in  triplicate.  633 
Standard   form,   632 
Transfer    of,    631 
Two-fold  character  of,  632 
Uniform   Bills  of  Lading  Act,  632 
Bill  or  Sale  (See  "Sales") 
Blank  Inooeseiient,  Negotiable  Instbu- 
ifENTS,  223 

BOABD    or    ExAMINBBS-IN-CHIEr.    647 

BoiLEB  Insurance,  296 
Bond,  in  Subetyship,  558 
Bonus.  319 

As  distinguished  from  wages,  319 
BaxACH    OF    Contbact     (See    Contracts, 

breach  of) 
Bbibeby,  Contbacts  or,  47 
Baixrs,  30 
Bbokebs.  165 

Fire  insurance,   268 
BaowN.  Justice,   Opinion  or,  666 
Bbyce,  J.,  excerpt  from  "American  Com- 
monwealth," 9 
BuBDEN  or  Paoor.  107 
Bubeau     or     Wab      Risk     Insubancs, 
j88 

BUBGLAXY   InsUBANCE,    295 
BlTBIAL  InSVBANCB,    296 


INDEX 


845 


By-Laws,         • 

Form,  793 
Adoption,    398 
Amendment,   399 
Charter  power,  398 
Definition,    398 
Enforcement,  399 
Report  of  committee  OBt 

Form,   805 


Capital,    Distinguished    fbom     Capital 

Stock,  401 
Capital  Stock,  401-407 
Assignment  of. 

Form,    790 
Capitalization,  401 
Certificates,  402 

Form,    789 
Common,   406 
Corporations  without,   401 
Distinguished    from    capital,    40X 
Full-paid,    404 
Issued,    403 
Lost  certificates,  407 
No  par   value,   405 
Preferred,  405 
Cumulative,  405 
Dividends,   406 
Rights  of  holders,  402 
Transfer  of,   407 
Treasury,   407 
Unissued,  403 
Watered,   404 
Cabrieb  (See  "Common  carrier") 
Catalogue,       Ordering       CiOOds       fxom, 

149 
Causa  Mortis  Gift,  505 
Caveat  Emptor,  144 
Certificate, 

Incorporation    (See    "Charter") 
Marriage.   538 

Stock   (See  "Capital  stock") 
Cbbtificate  of  Protest, 

Form,  780 
Chancery.   Suit   in,  23 
Charter,  385-390 
Definition  of,  385 
Powers,  general.  385 
Amendments,  389 
Appoint  directors,  officers,  and  agents, 

387 
Buy,  sell,   and  hold   property,   386 
By-laws,   to  make,  387 


Chabteb — Continued 
Po  we  r  s — Con  tinned 
Dissolution,  387 
Seal,  use  of,  386 
Special,  388 
Sue  and  be  sued,  386 
To  do  all  things  necessary.  388 
Ultra  vires,  388 
Synonyms,    385 
Chabt.  Showing  Jurisdiction  or  Stati 

Courts,  821 
Chattel,  Hiring  a,  622 
Chattel  Mortgage,  438 

Form,   807 
Checks     (See     "Negotiable     instruments, 

check") 
Children    (See    also    "Guardians,"    "Mi- 
nors") 
Adopted,  rights  and  duties  of,  548 
Criminals,   549 
Duties  and  rights  of  father,   54O 

As  to  third  parties,  546 
Duties  and  rights  of  mother,   547 
Choses   in   Action,   428 
Citations,  How  to  Find,  825 
Claims, 

Against  estate,  526 

Bankruptcy    proceedings    (See    "Bank- 
ruptcy") 
Preparing  in  patents,  644 
Tests  of,  in  patents,  645 
Code   Napoleon,    7 
Codicil,  501 
Collateral  Note, 

Form,   778 
Colonial  Charters,  f 
Commercial  Law,  19 
Commissioner  of  Deeds,  755 
Commissioner  of  Patents.  647 
Common  Carriers,  629-636 
Bailments   (See  "Bailments") 
Bill   of  lading. 
Form  814-818 
"Clean"    bill,    632 
Nature   of,    631 
Negotiable    instruments,   632 
Qualifications  on,  633 
Quasi-negotiable,  632 
Ship's,  usually  in  triplicate,  633 
Standard   form,   632 
Transfer  of,   631 
Two-fold   character   of,   633 
Uniform  Bills  of  Lading  Act,  632 
Contracts   of,   629 
Ejection  of  passengers.  634 


fl 


t|. 


846 


INDEX 


CoMMOK  Cauiess — Continued 

Failure  of  carrier  to  deliver  goods,  629 
Interstate   Commerce   Commission,   631 
Law  of,  630 
Liability, 

As  to  passengers,  633 

Limit  of,  634 
Lien,  right  of,  by  carrier,  630 
May  insure  goods,  630 
Passengers,  633 

Ejection  of,  634 

Payment  of  fare,* 633 
Private  carrier,  distinguished  from,  629 
Telephone  and  telegraph  companies,  634 
Termination  of  contract  of,  630 
Common  Law,  4 

COMrENSATlON, 

Acts    (See    "Workmen's    compensation 

acta") 
Commission,  334 
Lawyers',  724 
Competency    (See    also    "Incompetent!," 
"Insane  persons") 
Of  agent,  167 
Of  principal,  166 
Parties  to  a  contract,  49 
Indians,    43 
Lunatics,  43 
Married  women,  43 
Minora,  43 
Competition^  Unpaie  (See  "Unfair  Cmn- 

petition") 
Compiled  Statutes,  as  to  Intebest,  586 
Complainant,  25 
Complaint,  25 
Compound  Interest,  586 
Conditional    Indorsement,     Negotiable 

Instruments,  224 
Conditional  Sales, 

Acknowledgment,  requirement  of,  13s 
Affidavits,  requirement  of,  133,  134 
Agreement  in  writing,   133 
Part  payment,  133 
Possession,    133 

Protection  against  destruction  of  prop- 
erty,   136 
Protection  against  lien  on  property,  135 
'  Sighu  of  seller  in  Illinois  and  Penn- 
sylvania, 135 
State  laws,  134 

States  requiring  acknowledgment,  135 
States   requiring   affidavits,    134,    135 
Condition  Precedent,  65 
Condition  Subsequent,  65 
Confusion  of  Goods,  435 


Congress,  LBCisLATiyx  Powers,  10 
Consideration, 
Contracts, 

Inadequate,   53 
Mutual  promises,  s' 
Negotiable  instruments,  218 
Sale  or  contract  of  sale,  129 
Constitution 
Federal,  s 

Amendments,  11 
Sute,   10 
Contractors, 
Independent,  not  employees,  303 
Subcontractors,    303 
Contracts,  41-117 

Forms,   739-743t  757-76$ 
Acceptance, 

By   mail,  49 

By  telegraph,  49 

Manner  of,  50 

Oral  agreement,  51 
Actions  on,   103 

Assigned  contracts,  103 

Assumption   of   legality,    104 

In  equity,  105 

Joint  contracts,    103 

Requirements  of  courts  of  equity,  105 

Roles  of  evidence,  106,  110 

Specific   performance,   104 
Agreement, 

New,  sets  aside  old,  74 

To  rescind,  86 
Alteration,  law  as  to,  74 
Assignment   of,   79-81 
Forms,  760,  761 

Assignee,   liability  of,  80 

Assignee,    rights    of,    80 

Form  of,  79 
Bailment  (See  "Bailments") 
Breach  of,  92 

Actions  for,   95 

Denial  of  contract,  94,  98 

Failure  to   perform,  92,   97 

Law  governing  remedy,  98 

Reasonable  time,  93 

Refusal  to  perform,  93,  98 

Refusal   or   denial,   92 

Remedy,   instalment  contract,  96 

Statute  of  limitations,  99 
Classification  of,  56 

Executed,   65 

Executory,  65 

Express,  63 

Implied,  63 

Oral,  57 


INDEX 


847 


Con  tracts — Co  nttnued 

Classification  of — Continued 

Quasi,  64 

Recorded,  62 

Sealed,  61 

Void.  6s 

Voidable,  65 

Written,    58 
Competency  of  parties  to, 

Indians,  44 

Law  varies  with  location,  43 

Lunatics,   43 

Married    Women,    43 

Minors,  43 
Condition  precedent,  65 
Condition   subsequent,   6$ 
Consideration, 

Inadequacy  of,  53 

Mutual  promises,   5a 
Corporate, 

Form,  760 
Definition,  41 
Discharge  of,  84 

Act   of   God,   88 

Agreement   to   rescind,   86 

Impossibility  of  performance,  87 

Lapse  of  time,  89 

Offer  to  perform,  89 

Operation  of  law,  87 

Performance,  84 

Performance,  substantial,  in  building 
contracts,  84 

Strikes,  88 

War,  88 
Drafting,  66,  739-743 
Form,    742 

Data  for  contract,  740 

Getting   the   facts,   739 

Making  an  outline,  739 
Duress,  effect  of,  72 
Essential  features. 

Agreement   of   parties,  42 

Competency  of  parties,  4a 

Consideration,  52 

Definition,  42 

Lawful  subject  matter,  45 

Subject  matter  must  exist,  48 
Filling  in,  75 
Fire  insurance,  267-279 
Formal, 

Form,   759 
Fraud, 

Effect  of,  71 

Specious  schemes,   72 

What  constitutesi   70 


Contracts — Continued 
Gambling,  46 
Guaranty, 

Form,    818,    819 
Illegal,  46,  68 
Indorser    of    a    negotiable    initmnient, 

222 
Insurance, 

Fire,  267-279 

Life,  280-289 
Interpretation   of,   75 

Rules  to  ascertain  meaning,  76 

Joint, 

How     distinguished     from     several, 

lis 

Liability  of  parties  to,  115 

Test  of,  116 
Law  of  place,  48 
Law  varies  with  location,  43 
Legality,   assumption  of,   104 
Letters,  49 

Form,   758 
Life  insurance,  280-289 
Making,      methods      of,      57-66      (See 
also     subhead     "Classification     of" 
above) 

Contracts   which   must  be  in  writing, 
60 

Statute  of  Frauds,  59,  138-143 
Married  woman  party  to,  43 
Misukes,  effect  of,  68 
Mortgage,   464 

Novation,  agreement  of  parties,  81 
Options,    so 
Partnership,   344*374 
Remedies  for   breach  of,  95 

Action,  95 

Law  governing,  98 

Instalment  contracts,  96 

Liquidated  damages,  95 

Specific  performance,  96 

Statute  of  Limitations,  99 

Time  to  bring  suit,  98 
Requirements  for  suit  in  equity,  105 

Ignorance  of  party,   106 

Illegality,    105 

Negligence    (laches),   105 
Restraint    of   trade,   46 
Rules   of   evidence,    106 

Admissions,  108 

Books  of  account,  108 

Burden    of   proof,    107 

Kinds  of,    106 

Parol,  rule  as  to,   107 


ill 


84S 


INDEX 


Contracts — Continued 

Rules  of  evidence — Continued 

Transactions    with    party,    later    de- 
ceased, 109 

Where  no  witnesses.   109 
Sales.  121-161   (See  also  "Sales**) 
Forms,  762-766 

Bill  of  sale,  personal. 
Forms,  765 

Conditional.  133 
Form,  463 

Letters, 
Form,  763 

Memorandum    of. 
Form,    769 
Sealed.   57 
Several, 

How  distinguished  from  joint,  115 

Liability  of  parties  to,   115 

Test  of,  116 
Simple. 

Form,   757 
Specious  schemes.  72 
Statute  of  Frauds,  59.  138-143 
Sunday,  68 
Suretyship,  557-566 

Tender    of    payment    or    performance, 
iii-iij 

Acceptance  of,  113    ' 

Extent  and   kind   of.    iia 

Must  be  unconditional,  113 

Receipt  must  not  be  asked  for,   113 

Time  of  making,   iii 
Termination    of    (See    subhead    "Dis- 
charge of"  above) 
Undue  influence,  effect  of,  73 
Unilateral, 

Form,  7s8 
Verbal  agreements,  51,  57 
Warranty, 

Form,  766 
With  commission  merchant  need  not  te 

in  writing,  171 
Written,  58 

Which  must  be.  60 

CONTSIBUTOKY    NeGLIGEMCK,    DOCTIIHB    OF, 

326 
CoMVKYANcx    o»    RiM.    PaofMTY     (See 

"Property") 
Coolkt's  Constitotiomal  Limitations,  5 
CoryniGHTs, 
Affidavit,  681 

Data  necessary,  681 
Application  for,  making  out,  677 
Author's  name,   679 


CopYKiGHTs — Continued 
Books  deposited,  682 
British,  683 

Act  of  19H.  683 

"All  rights  reserved,"  notice  of,  684 

"Colorable"  publication,  683 

Simultaneous  publication,  683 

War    time   provisions,   extensions   of 
time,   683 
Copyright  law,  676 

Amendatory  Act,  677 
Copyright  Oftice,  677 
Date  of  publication,  680 
Definition,  675 
Fees,  678,  681 
Filing,  time   for,   68a 
First  step,  677 
Grant   of,   675 
Procedure,  subsequent.  678 
Publishers,    679 
Reissued  books,  680 
Remittances,    678 
Renewals.    682 
Royalty  contracts,  679 
Subject  matter  of,  675 
Title,   679 
Who  may  obtain,  675 

Aliens,  676 

Fictitious  name,  us*  <»f,  676 
CoRPOEATE  Note, 

Form.  778 
CosPOKATioNS,   377-424 

Forms,  788-806 
Attractiveness  to  investors,  382 
Bank  deposits,  422 
By-laws,  398 
Form,  793 

Adoption  of,  398 

Amendment  of,  399 

Definition,   398 

Enforcement,  399 

Report  of  committee  on.  805 
Form,  805 
Call  and  waiver  for  special  meeting. 

Form,   797 
Charter,   385 

Amendment,  389 

Appoint  directors,  officers,  and  agents* 

387 
Buy,   sell,   and  hold  property,   386 
By-laws,    power   to   make,    387 
Definition,  385 
Dissolution,  387 
General  powers,  385 
Seal,   use  of,  386 


INDEX 


849 


COtPORATioNs — Continued 
Charter — Continued 
Special  powers.  388 
Synonyms,    38s 

To  do  all  things  necessary,   388 
To   sue    and    be   sued,    386 
Ultra  vires,  388 
Classification   of,   377 
Aggregate,   378 
Eleemosynary,  378 
Moneyed,  378 
^lunicipal,  377 
Private,    377 
Public,   377 
Public   utility,   378 
Quasi  public,  378 
Sole,   378 
Corporate   entity,  377 
Corporate   form,   disadvantages  of,   383 
Corporate  mechanism,  382 
Creation  by  the  state,  379 
Definition,  377 
Directors,  417 
Agreement  to  consent  meeting. 

Form,   797  , 

Authority   of,   417 
Bank   deposits,  422 
Contracts,  execution  of,  423 
Corporate   seal,    423 
Creditors,  relation  to,  418 
Dividends,  422 
Functions   of,    417 
Liabilities  of,  418 

Meetings  (See  "Directors,  meetings") 
Number  and  authority,  417 
Officers,  relation  to,  420 
Qualifications,  419 
Quorum,  420 
Removal  of,  419 
Salaries,  421 
Status   of,  417 
Vacancies  and  removal,  4x9 
Distinctive  features,  379 
Dividends,    422 
Incorporation,  391-396 
Form,   791 
Application    for,   391 
Capitalization,   393 
Certificate,  391 
Certificate,  execution  of,  394 
Contracts  prior  to,  396 
Cumulative   voting,   394 
De  facto  organizations,  395 
Directors,   number  of,   394,  417 
Duration,  394 


CoRPOKATioNs — Continued 
Incorporation — Continued 

Incorporators,   392 

Location,  393 

Name,  392 

Principal   office,   39S 

Procedure,  395 

Purposes,  393 

Shares,   393 

Stock,   classification   of,    394 
Investors,   attractiveness   to,   382 
Legal   entity,  387 

Legally  qualified  to  be  principals,  166 
Limited   liability,    380 
Limited  powers,   380 
Lost  certificates,  407 

Filing  and  recording,  394 
Meetings,    413,    419    (See   also    "Direc- 
tors," "Stockholders") 
Forms,  797-803 
Minutes  of  regular  meeting  of  directors, 

800 

Minutes    of    special    meeting   of   stock- 
holders. 
Form,    799 
Motions. 

I'orm.  801 
Notice  of  special  meeting  of  directors. 

Form,   798 
Officers,  417,  420 

Election  of,  420 

Liabilities  of,   418 

Salaries,   421 

Vacancies  and  removals  of,  .421 
Permanence  of,  381 
Quorum,   413,   420 
Resignation   of  director,   peremptory. 

Form,  805 
Resignation   of    director,   tentative. 

Form,   804 
Resolutions,  certified,  designating  bank. 

Form,  802 
Resolutions,    directors. 

Form,  801 
Salaries,  421 
Seal,   corporate,   423 
Special  reports,  requirements  of,  383 
Special  taxes,   requirements  of,  383 
Statement,  corporate,  806 
Stock,   401 

Capital,  401 

Capital  stock  vs.  capital,  403 

Certificates,  402 

Common,  405 

Dividends,  preferred,  406 


850 


INDEX 


INDEX 


851 


CowonAtmnar-Contmiud 
Stock — Continued 

Full-paid,   404 

How  transferred,  407 

Issued,  403 

Lost  certifacate%  407 

No  par  value,  405 

Preferred,  405 

Subscription  to,  380 

Treasury,  407 

Undivided  interest.  401 

Uniform   Stock  Transfer  Act,  407 

Unissued,  403 

Watered,   404   < 
Stock   certificate. 

Form,  789,  780 
Stock  corporation  law,  404 
Stockholders,  410 

Incorporators,   410 

Liabilities  of,  4^2 

Meetings    (See    "Stockbolders,  meet- 
ings") 

Powers  ol.  41  x 

Proxies,  415 

Quorum,  413 

Rights  of,  410 

Rights  of  holders  of  common  stock, 

4«o 

"Stockholders  of  record,"  41a 

Voting,  414 

Voting  trusts,  414 

What  constitutes,  410 

Writ  of  mandamus,  411 
Stock  system,  382 
Subscription  list. 

Form,  788 
Subscription  to  stock.  380 
Treasurer,  affidavit  of. 

Fcrm.  806 
Uniform  Stock  Transfer  Act,  407 
Voting  trusts,  414 
With  capital  stock,  378 
Without  capital  stock,  378 
CruNiBx  CukiM,  25 

Court  ot  Ajfbals,  District  of  Colum- 
bia, 647 
Court  Rbports,  16 
Citations  of,  17,  825 
Volumes  of,   17 
Credit, 

Bad  checks,   151 

Bad  notes,  151 

Modem  theory  of,  57S 

Rights  of  unpaid  seller  under  contract, 

»5J 


Crioit  InsintAMCs,  396 
Crsoitors, 

Assignment  for  benefit  of,  59S-597 

Claims,  filing  date,  606 

Defraud,  attempts  to,  577 

Preferred,  611 

Rights  of  defrauded,  607 

Bights  of,  where  no  security  for  debt, 
576 

Kiffhti  of,  where  security  for  debt,  57$ 
Crimes, 

Agreements  not  to  prosecute,  47 

Contracts  to  commit,  47 
Criminal  Law, 

Classes  of  offenses,  37 

Penalties,  37 

Procedure  in,  3$ 
Cumulative  Preterred  Stock,  405 
Curtesy, 

Real  property.  447 

Right  of.  476.  S2S 


Damages, 

Breach  of  contract,  9* 

Employment,  309 

Sales,  156 
Husband's    right    to    recover    for    hit 

wife's  injuries,  S4i 
Date,  Nbgotiasle  Instruments.  217 
DATS  OF  Grace,  334.  33s,  351 
Death, 
GtfU  in  view  of,  $05 
Partner,  368 
Principal,  907,   308 
Debts,  569-583 
Accord  and  satisfaction,   572 
Accounting,    equitable   jurisdiction,    57 j 
Appropriation  of  pajrment,  573 
Bill  of  particulars  as  to,   570 
Credit,  modern  theory  of,   578 
Creditor,  attempts  to  defraud,  577 
Definitions  of,   569 
Enforcing  payment  of,  575 

Attachment,  580 

Defraud,  attempts  to,  577 

Execution.  581 

Garnishment,  581 

Liens,   579 

Mortgage,   575 

Where  creditor  has  no  security,  576     . 

Where  creditor  has  some  security,  57$ 
Evidences  of,  569 
Garnishment,  581 


Debts — Continued 
Liens, 

Common  law,  579 
Equitable,  579 
General,  579 
Judgment,  580 
Mechanics',  580 
Particular,   580 
Statutory,   579 
Open  accounts,   570 
Part  payment  in  full  settlement,  571 
Receipts,  570 
Releases,  570 

Form,  811 
Satisfaction,  accord  and,   573 
Stated  accounts,  570 
Statute  of  Limitations,  570 
Deductions,  Wage»  321 
Deed, 

Quitclaim,  455 
Record  of,  455 
Searching  title,  459 
Warranty,  456 
De  Facto  Corforations,  395 
Defendant,  25 
Delivery  (See  also  "Sales") 
Contract  of  suretyship,  560 
Negotiable   instruments.   218 
Demand.  Payable  on,  216 
Demurrer,  26 
Deposit,  Mandate  and,  620 
Design  Patents,  648 
Directors, 
Authority  of,  417 
Bank  deposiu,  422 
Contracts,  execution  of,  423 
Corporate  seal,  423 
Creditors,  relation  to,  418 
Dividends,  422 
Functions  of,  417 
Liabilities  of,  418 
Meetings, 
Call  and  waiver  for  special,  797 

Form,   797 
Election  of  officers,  430 
Minutes,  800 
Form,  800 
Motions,  801 
Form,  801 
Quorum,   420 
Regular,  419 
Resolutions,  801,  803 

Forms,  801-803 
Special,  419 


Directors — Continued 

Meetings — Continued  • 

Special,  notice  of,  798 

Form,   798 
Waiver  of  notice,  797 
Form.   797 
Number  of,  417 
Officers,  relation  to,  430 
Qualifications,  419 
Removal  of,  419 
Resignation  of. 

Form,  805 
Salaries.  431 
Status  of.  417 

Vacancies  and  removal,  419 
Of  officers,  421 
Disability.      Compensation      for      (See 

"Workmen's  compensation  acts") 
Discharge  of  Contract.  84-90 
Dishonor,    Notice    of.    Negotiable    In- 
struments, 237 
Dissolution, 

Corporations,    387 
Partnerships,  371 
Dividends,  423 
Divorce, 
Absolute,  543 
Alimony,  544 
Dower  rights,  544 
Grounds  for,  542,  543 
Husband's  right  to  curtesy,  544 
Separation,  542 
Suit  for,  543 
Docket,  30 

Dollar  Acceptance,  349 
Dower, 

Real  property,  447 

Rights  of,   540 

Rights  of  wife  found  guilty  in  divorce 

action,  544 
Widow's  claim  at  settlement  of  estate, 

479 
Drafts  (See  also  "Negotiable  instruments, 
bills  of  exchange") 
Liability  of  drawer,  247 
Quality  of  negotiability,  213 
Sight, 

Form,  779 
Transfer.  314 
Drawee,  Bill  of  Exchange,  347 
Drawer, 

Bill  of  exchange,  247 
Negotiable  instruments,  liability  of,  247 
Duress,  Contracts,  Effect  of,  72 


f 
I 


$$2 


INDEX 


853 


8 


Eassmbnts,  448 

EMAMCirATION,    546 

EMnoYEES  (See  "Employment") 
EMrLOYEKs'  L'ability  Acts,  327 
Differences  in,  337 
Federml,  301,  329 
Employment, 
Compensation,  303 
Contract  of,  301-311 
Forms,  781-783 

After  expiration  of,  310 

Breaking,  306 

Definition,   30a 

Duration,  3od 

Employee's  rights  to  damages,  309 

Employer's  grounds  for  damages,  309 

Essential  element,  303 

Express,   cannot    be   proved   by   cus- 
tom, 304 

Federal  Employers*  Liability  Act,  329 

Independent  contractors,  303 

Interpretation  of,  304 

Modification  of,  305 

References,  310 

Rights  and   remedies,   308 

Termination  by  breach,  307 

Termination  of,  306 

Wages,  305 

Wliat  constitutes,  302 

What  the  employee  may  do,  307 

What  the  employer  may  do,  307 

When  it  begins,  306 

Acting  as  agent,  179 
Employee, 

Confidential  matters,  313 

Damages,  rights  to,  309 

Fidelity  of,  313 

Inventions,  314 

Liable  to  employer  for  acts  done  to 
third  parties,  336 

Lojralty  of,  313 

Obedience  of,  313 

Provision   for  work,  316 
Employer, 

Inspection,  necessity  for,  317 

LiabiKties  of,  employees  going  to  and 
coming  from  work,  317 

Liability  of,   in  using  force,  314 

Limits  of  liability,  315 

Responsibility  of,  315,  324-336 

Special    contracts    to     relieve     from 
liability,  318 
Employers'  liability  acts,  327 
Employer's  responsibility,  3I5<  334-336 


Employment — Continutd 

Employer's  responsibility — Continued 
Assumption  of  risk,  doctrine  of,  325 
Comparative  negligence,  326 
Contributory  negligence,  doctrine  of, 

326 
Employers'  liability  acts,  337 
Federal  Employers'  Liability  Act,  329 
Fellow-servant   rule,    326 
Notice  of  accidents,  time  limit,  328 
Report  of  accidents  to  Compensation 

Commission,  334 
Subcontractors,    328 
Superior  servant  rule,  327 
Third  parties,  336 
Workmen's  compensation  acts,  330 
Federal  Employers'  Liability  Act,  329 

Liability  acts,   327 

Death  of  employee,   cause  of  action, 

3j8 
Differences  in,  327 
Notice  of  accident,  time  limiu,  328 

Old-age  pensions,  301 

References,  310 

Relations   of  parties,   313-323 
Bonus,  319 
Co-operation,   315 

Duties  of  employees  to  employer,  313 
Duties  of  employer  to  employees,  314 
Employees  must  take  reasonable  care, 

V7 
Fines,  deductions,  321 
Inspection,  necessity  for,  317 
Instruction   of  employees,  316 
Inventions,  314 

Joint  owners,  presumption  as  to.  319 
Liability  of  employer  in  using  force, 

314 

Liability  of  employers,   317 

Limits  of  liability,  315 

Overtime,  320 

Salary  and  wages,  distinction  between, 
320 

Wages,  319 
Rights  and  remedies,  308 

Employees  right  to  damages,  309 

Employer's  grounds  for  damages,  309 

Interfering  between  employer  and  em- 
ployee, 309 
Third  persons,  33s 

Employer  not  responsible  for  acts  of, 

335 
Employer  responsible  for  acts  of  em- 
ployees to,  336 
Workmen's  compensation  acts,  330-33S 


Emplotmbnt — Continu  ed 

Workmen's     compensation     acts — Con- 
tinued 
Arbitration,  333 
Compensation  Commission,  334 
Employee  cannot  give  up  right,  335 
Employer's  defenses  Uken  away,  334 
Injuries,  compensation  for,  331 
Injury  from  third  person,  332 
Modern   statutory  law,   33 » 
Occupations   included  in,  331 
Schedule  of  compensation,  333       ^ 
Third  persons,  335 
Who  are  entitled  to  benefit  of,  333 
EouiTY, 

Courts  of,  requirements,  105 
Law  and,  23 
Legal  sense,  23 
Suits  in,  23 

Appointment  of  receiver,  604 
Bringing,   28 
Estate   (See  also   "Will."   "Property") 

In  fee  simple,  444 
Ethical   Standards  of  the  Legal   Pro- 
fession,  719 
Evidence, 

Admissions,  108 
Burden  of  proof,  107 
Parol,  rule  as  to,  107 
Rules  of,   1 06- no 

Transactions  with  party  later  deceased, 
109 
Evidencing  an  Instrument,  744-756 
Forms,  744-756 
Ackn  owl  edgments. 

Forms,  751 
Affidavits,  75^-754 

Form,   753 
Attestation  clause, 
Forms,    749,    7S0 
Clerk's  authentication, 

Form,  752 
Methods  of,  744 

Officers  authorized  to  Uke  acknowledg- 
ments and  administer  oaths,  755 
Practical  suggestions,   75* 
Seals,  use  of,  748 
Signatures,   744 

Forms,   745,  746 
Testimonium  clause. 
Forms,  747.  748 
Examination,  Life  Insurance,  383 
Examiners,  Patents,  644 
Execution,    Enforcement   of  Judgment 
for  Debt,  581 


Executor  (See  also  •'Adminittrator*') 

Estate,  duties  of,  5»* 

Rights  of,  5i3>  514 
Executory  Devises,  446 
Ex  Parte,  35 
Express  Contracts,  63 

P 

Father  (See  "Children") 

Federal  Employers'  Liability  Act,  301, 

329 

Federal  Income  Tax,  697 
Federal  Reserve  Act,  249 
Federal  Reserve  Banking  Law,  249 
Federal  Reserve  Banks,  249 
Federal  Trade-mark  Law,  660 
Fees,  Lawyers',  724 

Divorce  suits,  543 
Fellow-servant,  Rule  of,  326 
Fidelity  Insurance,  296 
Fines  Imposed  Upon  Employees,  321 
Fire  Insurance   (See  "Insurance") 
Fixtures,    Regarded  as   Personal    Prop- 

erty,  431 
Foreclosure,  462 

Method  of  procedure,  462 
Foreign  Bill  of  Exchange,  Pxotest  of, 

254 

Fraud, 
Agent,  197 
In  contract. 
Effect  of,  71 
What  constitutes,  70 
What  will  nullify,  71 
Specious  schemes,   72 
Statute  of,   59 
Funds,  Custody  of,  Agents,  193 
Futures,    Contracts    for    Buying    an© 
Selling,  46 

G 

Gambling  Contracts,  4^ 

Garnishment,  581 

General    Average,    Marine    Insurance, 

291 
General  Partners,  345 
General  Release,  571 

Form,  81 r 
Gifts, 

Causa  mortis,  505 

Checks  as,  263 

In  view  of  death,  505 

Transfer  of  title,  438 
Glossary,  828-840 
(500D-WILL,  Partnership,  373 
Grand  Jury,  35 


854 


INDEX 


GlAlfT,     ROBEXT,     StATSMKHT     Of,     At     TO 

Wills,  sjo 
Giour  Insukancs,  293 

GUAmANTOX,  CONTBACr  or  SUXBTYWlt,  s$f 
GUASAXTT, 

Contract  of»  S57 

Fonnt,  818,  8if 
Title.  460 

GHABDIAHS, 

Of  property,   SS^ 

Sale  of  real  estate,  5  S3 
Penonal,  551 


Hail  IifsvKAircB,  297 
HAimiMAN,  Edwakd  H.,  Wiu.  or,  4lf 
Health   Insukance,  393 
HxAKiNcs,  Bevokx  Asbitkatou,  705 
Hubs    (See    "Inlieritaiice,*'    "Property," 
"Will") 

HOLDEX      or      NegOTIABLI      iNtTXVMXltTB, 

sa6-338 

HOLOGXATBIC   WiLLS,   490 
HOMXSTXAD,    448 

HusxAMo   AND    WiFx    (Scc    xlto    "Maf- 

riage") 
Alimony,  544 

Annulment  of  marriage,  535 
Communis  property,  540 
Riglits, 

Curtesy  and  dower  (See  "Curtesy," 
"Dower") 

In  case  the  other  is  injured,  S4i 

In  each  other's  property,  540 

Personal,  S39 

When  there  is  no  will,  479,  484 
Wife, 

Acting  as  agent  for  husband,  17s 

Maldnf  a  will,  485 

May  appoint  agents,  166 

Party  to  a  contract,  44 


IixxGAL  AcTioiif,  45,  68 
Illxgal  Contxacts,  ErrxcT  op,  68 
Illinois,  Right  op  Sellsx  Unoib  0>n- 

oiTioNAL  Salx,  135 
Implied  Contxact,  63 
Incoupxtxnts    (See    also    "Insane    per- 
sons'*) 

Agents,  167 

Cannot  make  a  will,  485 

Contracts  with,  43 

Marriage  of,  535 

May  buy  necessities,  43 


Incokpoxation  (See  "Corporations") 
Indians,  Paxty  to  a  Contxact,  44 

IllBOXSXlCENT, 

Form,  774 
Blank  or  special,  333 
Conditional,  334 
Effect  of,  334 

Must  be  of  entire  instrument,  333 
Qualified,  334 
Restrictipe,  ^3 

INDOXSXX, 

Amount  of  liability,  330 
Contract  of,  333 
Discharge  of,  330 
Liability   of,   239 
Inplvbnce,   Undue, 
Contesting  will  on  ground  of,  539 

iNPBINCEIiENT, 

Equiyalents,  650 

Nature  of,  650 

Substitution,  6so 
Inhxxitanck  (See  also  "Will") 

Care  of  property  of  deceased   person, 
S06,  507 

Dying  intestate,  475-484 

Rights  in  property  left  by  will,  538 

Rights  in  property   when  there  is  no 
will,  SS4 

Tax,  508 
Injunction,  38 
Injuxixs  (See  "Workmen's  compensation 

acu") 
Ihsanx  PxxsoNt 

Agent,  308 

Cannot  contract,  43 

Cannot  make  a  will,  48s 

Contest   of  will   of,   485 

Debtor  in  suretyship  contract,  S6i 

Marriage  of,   S37 

May  buy  necessities,  43 

Partner,  369 

Principal,  166,  307,  3o8 
Insolvency,   596 

Assignment,  relation  to,  596 

Bankruptcy,  relation  to,  596 
Inspection.    Employbx's    Liabiutt    worn, 

3i5»  3»7 
Insvxanck,  267-397 

Accident,   493 

Automobile,   395 

Boiler,  396 

Burglary,   395 

Burial,   396 

Credit,  396 

of,  267 


IKbEX 


8SS 


tNSVKANCE — Continued 
Fidelity,  296 
Fire,  267-279 
Agents,  268 
Alienation,  273 
Coinsurance,   274 
False  representations,  275 
Floating  stock,  273 
Insurable  interest,  273 
Nature  of  contract,  268 
Options     which     the     company     may 

exercise,  277 
Parties  to,  267 
Policy,  269 

Policy,  cancellation  of,  271 
Policy,  effect  on,  of  certain  acts,  270 
Policy,   standard  forms,  2O9 
Policy,  what  included,  271 
Premiums,   271 
Premiums,   effect   of    failure   to   pay, 

272 
Property  insured,  272 
Reinsurance,  274 
Settlement  of  losses.  277 
Warranties,  275 
What  may  be  insured,  273 
What  may  be  insured  against,  273 
Government,  for  soldiers  and  sailors,  387 
Group,  393 
Hail,   397 
Health,    293 

Law  as  to  insurance  agents,  268 
Liability,  294 
Life,  280-289 
Agents,  284 
Application,   283 

Beneficiary,   right   to   change,   285 
Double   indemnity   policies,   283 
Endowment  and  term  policies,  282 
Examination,  283 
False  statements,  284 
Government  insurance,  conversion  of. 

a87 
Government       insurance,       disability 

clause,  288 
Insurable  interest,  280 
Limited  payment,  283 
Mutual  and  fraternal,  381 
Nature  of  contract,  280 
Parties,  281 
Policy,  282 

Policy,  assignment  of,  385 
Premium  rates,  284 
Settlement  of   losses,   286 
Suicide,  286 


Insukance — Continued 
Live  stock,  297 
Marine,  290-292 

(jeneral  average,  391 

Insurable  interest,  291 

Lloyd's  policy,  290 

Particular  average,  391 

Proof  of  loss,  291 
Plate  glass,  395 
Rent,   297 
Strike,    297 
TiUe,  295 
Tornado,  297 
Warranties    and    false    representations, 

275 
Workmen's  compensation  acts,  334 

Interest,  584-588 

Bank,  rate  of,  585 

Compiled  statutes,  586 

Compound,  586 

Definition  of,   584 

Discount  of,  585 

Legal  rate  of,  584 

Partial  payments,  rate  of,  587 

Pawnbrokers,  rate  of,  586 

Rate   of,   on  partial  payments,   587 

Usury,   585 
Interstate    Commerce    Commission,    13, 

631 
Intestate,  Dying  (See  "WUl") 
Invention    (See  "Patents") 


Joint  Contracts,  iis 
Joint  Inventors,  650 
Joint-stock  Company,  351 
Judges,  Recall  of,  20 
Jury,  Grand,  35 
Justice  of  the  Peace,  756 


Landlord  (See  "Property") 
Law, 

Advisability  of  litigation.  32 
And  equity,  relation,  23 
Criminal, 

Offenses  against,   37 
Penalties,  37 
Procedure  of,  35 
Definition  of,  3 
Evolution  of,  3-5 
Judges,  recall  of,  20 
Liberty,  relation  between,  4 


11'^ 


8s6 


INDEX 


INDEX 


857 


Law — Coiiltiii«#rf 
Orifiii  of.  3 
Remedial,  2Z 
dources  of. 

Articles  of  Confederatioii,  S 

Colonial  charters,  s 

Common  law,  4 

rederal  Constitutioii,  S 
Suits  at,  24 

Service  of  sammons,  as 
Trial  al,  a6 
Unconstitntional.  ao 
Unwritten. 

Common  law,  18 

Court  reports,   16 

Definition  of,  15 

Law-merchant   and   commercial   laWt 

19 
Precedents,  doctrine  of,  16 

Written, 

Amendments,  constitutional,  10 

Code  Napoleon,  7 

Congressional,  10 

Constitutional  government,   7 

Constitution  of  the  United  States,  8 

Constitutions  of  the  states,   10 

Constitutions  that  legislate,  11 

Definition  of,  7 

Legislative  enactments.  la 

Statute.  13 

Subsidiary  laws,  13 
Law  Books,  711.  712 

A  professional  law  library,  824 
Lawyiks  (See  "Legal   profession") 
Lease  (See  also  "Property") 

Form.  808 
Expediency    of    a    written    agreement, 

471 
Parties  to,  468 
Rtghta      of      tenant      and      landlord, 

469 

Lbgal  PaoFESSioN,  7II-73S 
Canons  of  Ethics,  724 
Compensation  of  lawyers,  724 
Conservatism  of  law,  7<9 
Criminal  lawyer,  721 
Deceptive  statistics,  733 
Dignity  of,  729 
Effect  of  legal  training,  728 
Encyclopedias,  712 
Ethical  standards  of  bar,  719 
Family  lawyers,  722 
Fascination  of,  716 
Great  lawyers,  730 
History  of  law,  729 


Legal  PiorsssioM — Continued 
Law  books  for  business,  71a 
Law  books  for  study,  711 
Lawyers,  code  of.  7*0 
Necessity  of,  726 
Overcrowded,   716 
Practical  directions,  734 
Precedent,  domination  of,  jif 
Principles  of  law,  729 
Procedure  of  law,  729 
Professional  law  library,  824 
Relation  xs>  public  life,  728 
Securing  clients,  732 
Selecting  a  lawyer,  721 
Study  of  law. 

Case  method,  712 

Commercial,  714 

Taking  a  course  in,  713 
Succeeding  in  the,   732 
Text-books,  711 
Vocation,  law  as  a,  731 
Work  of  family  lawyer,   727 
Yearly  consultation  fee,  725 
Legality,  Assummioh  or,  im  <:k>NTaACT, 

104 

LEGISLATlOir, 

Congress,  7 
Enactments,  la 
Sute.  10 
LsTTBfts  or  Administration,  sia 

LSTTEES   TbSTAMENTORY,    512 

Lex  Non  Scripta,  15 
Lex  Scripta,  15 
Liability, 

Agents,  198 

Limited,  corporations,  380 

Negotiable  instruments  (See  "Negoti- 
able instruments,  liability  of  par- 
ties") 

Partners,  364-367 

Partnership  property,  355 
Liability  Act,  Employe«s'  Fbobkal,  329 
Liability  Insurance,  294 
License,  Marriage,  537 
Licenses,  of  Patents,  649 
Liens,  579,  580 

Common  carriers,  575,  630 

Common  law,  579 

Employees',  enforcing  payment,  575 

Enforcing  payment  of  debt,  579 

Equitable,  579 

General,   579 

Judgment,  580 

Mechanics',  enforcing  payment,  S75, 
580 


l,i%vs— Continued 
Particular,    580 

Statutory.  579  -^    .e^  -Iso  "In- 

LiFE  Insurance.   280-289    (See  also 

surance")  "Statute 

Limitations.    Statute  of    (See      Sutut 

of  limitations") 

Limited  P^"**^"'*  3*^^c^,„   „om   Ad- 
Lincoln,    Abraham,    Excerpt   fro 

DRESS.  y\  Partners.  270 

Liquidation,  duties  or 

Lis  Pendens,  459 
Litigation, 

Advisability  of,  32 

Arbitration,  70* 
Live  Stock  Insurance,  297 

LOCATION,    INCORPORATION,    393 

Locus  Sigilli,  6i,  455.  489 
"^B^'insurance,  settlement  of    276 
Life  insurance,  settlement  of,  286 
L.S.  {Locus  Sigilli),  61,  455.  489 


Az-riw.-    AS    Gekctal    Agekt, 
Managek,    Acting    as    \j^^ 

108 
Mandate  and  Deposit,  620 
MARINE  INSURANCE  (See  "Insurance         ^^ 
Ma^r'aoe  (See  also  "Husband  and  wife, 

"Children") 
Against  one's  will,  536 

marry  another  unlawful,  46 
Ap."m.n.  .0   prevent,   unlawful.  46 
Annulment,  535 
"Common  law,"  53^ 
Contract  made  in  writing,  59 

Divorce, 

Absolute,   54a 

Alimony,  544 

Grounds   for,   54^ 

Lawyer's  fees,  543 

Limited,  542 

No  uniform  law,  542 

Right  of  dower  after,  544 

Unwise  to   take   up  temporary   resi 
dence  in  another  state,  543 
Forbidden,  535 
Incompetents,   537 
Invalid.   535 


Marriage— Confinwed 

License,  537  .    ._;„„j 

Rights  if  marriage  partner  is  injured. 

Damages,  54 ^ 

Employers'  liability  acts,  542 

In  case  of  death,  542 

Workmen's  compensation  acts,   542 

Rights  in  property. 

Community  property.  540 

Curtesy,  54° 

Dower,  540 

Estate  by  marital  right,  54© 

Rights  under,  . 

Husband  and  wife  may  not  sue  each 

other,  539 
Necessaries  of  wife,  539 
Services  of  wife.  54i 
Society  of  husband  and  wife,  539 
Support  of  wife,  539 
What  constitutes,  537 
Who  may  enter  into,  535 
Married  Women, 

Appointment  of  agents,    166 

As  agents,    i75  .      _^^_ 

MARSH.  Ednor  a..  Excerpt  from  Address, 

MATTHEWS,  Brander,  Excerpt  Faou   RE^ 
VIEW  OF  "Law  and  the  Family,     TJJ 
MAXIM,     HIRAM,     Excerpt     from       My 

Life,"  717  „      ..q._-u 

Meetings      (See      "Directors.  Stock 

holders")  ^  ^       __ 

MILITARY     SERVICE.     ^-E    INSURANCE      ^8 

Minor  (See  also  "Guardian.     Children  ) 
Can  act  as  agent,  167 

For  parent,   167 
Cannot  appoint  agents,  166 
Cannot  make  a  will,  except  of  personal 

property,  485 
Criminals,  549 
In  partnership,  344 
Party  to  a  contract,  44 
Wages   of,    546 
Minutes, 

Directors*  meetings,  420 
Regular  meeting  of  directors. 

Form,  800  ,,    ,j    . 

Special  meeting  of  stockholders. 

Form,   799 
Stockholders'  meetings,  413 

Misdemeanors,  37  ,_ 

Mistakes,  Effect  on  Contracts,  68 
Models  of  Patents,  643  . 

Montgomery,  R.  H.,  Excerpt  from     In 
come  Tax  Procedure,    697 


8s8 


INDEX 


I 


IfOKTGAGES, 

Forms,  807,  809 
Building  and  loan,  463 
Chattel,  438 
Form,  807 

Transfer  of  title,  440 
Contract  to  mortgage,  4^ 
Deeds  of  trust.  4^3 
Kinds  of,   463 
Purdiaae  moncXt  463 
Real  property,  460 

Foreclosure,  462 

Mortgageable  property,  461 

MOTHEB,   DOTIM  AMD  RiGHTS  OP,   547 

Motions   at   Stock  holde«s'   ano    Diaic- 
TOKS'  MxKTiNas,  8oi 
Form.  8oi 

MuTUAjL    Lirs    Insumancb    (See    "Insur- 
ance") 

H 

Nbgligbiick. 
Comparative,  326 
Contributory,  324,  326 
Doctrine  of,  326 
Nbgotiable  Instkumknts,  ai3>s&| 

Forms,  773-780 
Acceptance,  bank.  250 

Form,  779 
A<;eptance,  dollar,  249 
Acceptance,  trade,  251 

Forms.  780 
Allowable  provisions.  219 
Bills  of  exchange,  213 

Acceptance,   2*7    (See  also  "Accept- 
ance") 

Acceptor,  24^ 

Bills  in  a  set.  25s 

Definition,  247 

Drawee,  253 

Effect  of  accepunce,  248 

Foreign,  247 

Inland.  247 

Liability  of  maker,  drawer,  and  ac- 
ceptor, 247 

Mode  of  acceptance,  248 

Presentment  for  acceptance,  254 

Protest  for  non-acceptance,  254 

Qualified  acceptance.  248 
Check,  257-263 

Forms,  773-775 

Amount  of,  altered,  36a 

Certification,  261 

Corporate,  773 
Form,  773 

Definition.  257 


Nbootiablx  Instsu  mints — Continugd 
Check — Continued 

Evidence  of  payment,  257 

Iraud,  262 

Gilt.  263 

Individual, 
Form,   773 

Indorsement,  corporate,  774 
Form,  774 

Overdraft  not  usually  criminal,  »6$ 

Presentment  for  payment,  258 

Raised   check,   262 

Relation  of  bank  to  depositors,  259 

Relation  of  bank  to  holder,  260 

Revocation,  260 

Signature   of  drawer,  258 

Voucher, 
Form,  775 
Consideration,   218 
Construction,  rules  of,  219 
Date,  217 

Ante-dated   or  post-dated,   aiy 

Legal  holiday.  218 

Space  left  blank,  217 
Days  of  grace,  234,  235.  231 
Delivery,  218 
Discharge  of. 

Alteration,  effect  of,  242 

Person   secondarily   liable.  241 

When  there  is,  241 

When  there  is  not,  241 
Dishonor,  notice  of,  237 
Draft,  sight. 

Form,  779 
Holder  in  due  course,  214 
Holder,  rights  of.  226-228 
Indorsement    (See    subhead    "Negotia- 
tion" below) 
Indorser. 

Contract  of,  222 

Discharge  of,  230 

Liability   of,  229 
Legal  requirements. 

Allowable  provisions.  219 

Certain  future  time,  216 

Certainty  as  to  sum,  216 

Consideration,  218 

Date,  217 

Delivery,    218 

Non-essentials,  220 

Payable  on  demand,  216 

Payable  to  bearer,  317 

Payable  to  order,  217 

Signature,  215 

Unconditional  promise,   215 


INDEX 


859 


Nbcotiablb  Instbuments— Con«»n«rd 
Liability  of  parties,  229-232 
Acceptor  247 

Accommodation  signer,  231 
Drawer,  247 
Guarantor,   231  ' 
Indorser,  229 
Maker,  247 
Negotiation, 

Blank       or       special       indorsement. 

223 
Conditional  indorsement.  224 
Effect  of  indorsement,  224 
Indorsement   must    be   ol   entire   in- 
strument, 222 
Method   of,   222 
Qualified  indorsement,  224 
Restrictive  indorsement,  223 
Non-negotiable  contracts.  214 
Note, 

Collateral, 

Form,   778 
Corporate, 

Forms,  776.  777 
Individual, 

Form,  776 
Promissory  (See  subhead  "Promissory 
notes"  below) 
Notice  of  dishonor. 
Effect  of,  237 
Form  of,  237 
Necessity  of,  237 
Protest,  239 

Time  of,  where  parties  reside  in  dif- 
ferent  places,   238 
Time  of,  where  parties  reside  in  same 

place,  238 
When  not   required,   239 
Where  to  send,  238 
Presentment  for  payment. 
Excused,  235 
Necessity  of,  234 
Requirements  for,  234 
When  due,  235 
Promissory  notes,  213.  243,  245 
Definition,   243 
Demand  notes,  245 
Gift  of,   245 
Interest,  244 
Liability  of  maker,  243 
Renewal,  effect  of,  245 
Protest,   239 
Certificate  of. 
Form,    780 
Quality  of  negotiability,  213 


Negotiable  Instbuments — Continued 
Rights  of  holder,  226-228 
Defects  of  title,  227 
Definition,   226 
Holder  in  due  course,  227 
Irregular  transfer,  effect  of,  227 
Other    than    holder    in    due    course, 
228 
Rules  of  construction.  219 
Signature,  215 
Corporation,  215 
Forged,   215 
Individual,   215 
Uniform   Negotiable  Instruments   Law, 

214 
Voucher  checks. 
Form,   775 
Negotiable  Instbuments  Law,  261 
Negotiation     (See     "Negotiable     instru- 
ments, negotiation") 
NoTABY  Public,  755 

Notes,  243   (See  also  "Negotiable  instru- 
ments") 

Forms,  776-778 
Bad,  seller  still  unpaid  if  given,   151 
Collateral, 

Form,  778 
Contract    of    suretyship,    delivery    and 

acceptance,  560 
Corporate, 

Forms,   776,  777 
Individual, 

Form,  776 
Partnership,  361 
Promissory,  213,  243-245 
Quality  of  negotiability,  213 
Signed  by  partners,  361 
Transfer,  214 
Notice, 

Dishonor,   negotiable  instruments. 
Effect  of,  237 
Form  of,  237 
Necessity  for,  237 
Protest,  239 
Time  of,  238 
When  not  required,  239 
Where  to  send,  238 
Employment,     contract     providing    for, 

309.  310 
Of  accident,  328 
Partner's,    of    withdrawal    from    firm. 

345 
Probating  will,  506 
Special   meeting  of  directors,   798 

Form,  798 


86o 


INDEX 


NovATioir, 

Contracts,  8i,  82 
Agreement  of  parties*  83 
KuHCUFATivE  Will,  490 


OtLIGSE,   CONt«ACT  OF  SuiETYSHir,   557 

oaligoa,  contiact  op  suketyship,  557 
Oppice,   Principal,  op  Coiporation,  391 
Opficebs  of  Corporation, 

Appointment  of,  387 

Election  of,  420 

Removal.  4^11 
Official  Gazette^ 

Registration  of  trade-marks,  662 
Options,    Contracts    for    Buying    amo 

Selling  of,  46 
Oral  Contracts,  51,  57 
Oroer.  Patasle  to,  Negotiable  Imstru- 

mbnts,  217 
Overtime,  3J0 
Ownership, 

la  common,  449 

Joint,  449 


Parent    and    Ckilo     (See     "Children," 

"Minors") 
Parol  Evidence  Rule,  107 
Particular  Average,  Marine  Insurance, 

291 
Partners  (See  "Partnership") 
Partnership, 

Forms,   784-787 
Articles  of. 

Forms,  784,  785 
Associations,  341 
Classification  of,  350,  351 

General,   350 

Joint-stock  company,  351 

Limited,  350 

Non-trading,   350 

Special,  350 

Trading,  350 
Clauses,  sundry,  of. 

Form,  786,  787 
Contract  of,  344-352 

Articles  of,  347 

Classification  of,  350.  351 

De  facto  corporation,  347 

Dormant  partners,  345 

Firm  name,  348 

General  partners,  345 

Law  regulating,  347 


Partnership— Cofifinurif 
Contract  of — Continued 
Limited  partners,  345 
Nominal  partners,  346 
Oral,  347 
Parties,   344 
Partners,  kinds  of,  345 
Personal  relation,  349 

Silent   partners,  345 

Subpartners,   346 

Uniform   Partnership  Act,  348 

Written,  347 
Contracts  that  are  not  partnerriiip  con> 

tracts,   341 
Death  of  partner,  368 
Definition  of.   339 
Distinctive  features,  340 
Distinguished   from  non-partnership  or> 

ganizations,   340 
Essential  elements,  339 
Firm  name,  348 
Good-will,  373 

Intra-partnership  relations,  365 
Laws  regulating  formation  of.  347 
Legally  qualified  to  be  principal,  166 
Liability  to  copartners,  364 
Liability  to  third   parties,   342,  366 
"Marshaling  assets,"  356 
Powers  of  partners,  361 

Acts   of   partners   without   authority, 
363 

Intra-partnership  relations,   365 

Issuing  negotiable  instruments,  361 

Majority  rule,  362 

Notes  on  firm,  362 

Restrictions   of,   362 
Profit-sharing,  cases  of,  341  , 

Property,  353-360 

Accounting,  right  to.  358 

Assignment   for   benefit   of  creditors, 
356 

Investments,   354 

Liability  of,  for  debt,  355 

Nature  of,  353 

Personal  property  of  firm,  354 

Private  speculations,  358 

Profits,  357 

Real  esute,  354 

Rights  and  interests  of  partners,  354 

Rights  of  surviving  partner,  372 

Salaries,  357 

Wives,  rights  of,  355 
Termination  of,  368 

Action   in   chancery,   370 

Bankruptcy  of  partner,  369 


INDEX 


861 


Partnership — Continued 
Termination    of — Continued 
Breach  of  articles,  370 
By  agreement,  368 
Death  of  partner,  368 
Duties    of    partners    on    dissolution. 

Enforced  dissolution,  368 

Good-will,  372 

Insanity   of  partner,   369 

Notice  of,   369 

Rights  and  interests  of  partners,  372 

Rights  of  surviving  partner,  Z7~ 

Third   parties,   liabilities  of   partners, 
366 

Winding  up  business,  371 
Uniform  Partnership  Act,  348 
Passengers,  Carriers  of,  633 
Patents,  639-653 
Amendments,  645 
Appeals,  647 

Application,   preparing,  643 
Assignments,   649 
Claims,  preparing,  644 
Claims,  tests  of,  645 
Constitutional  authority,  639 
Definition,  639 
Design  patents,  648 

Application  for,  648 

Drawings  of,  648 

Ornamental,  648 

Term  of.  648 
Employee's  right  to,  314 
Examiners,    644 
Extending  life  of,  639 
Few  valuable,  652 
Final  decision,  646 

Appeals,  647 

Board  of  £xaminers-in-Chief,  647 

Commissioner  of  Patents,  647 

Court  of  Appeals,  647 
Foreign, 

Annual  payments,  649 

Rules  for  obtaining,  648 

Working  of,  649 
Government  fees,  647 
Grant,  647 
Infringements, 

Equivalents,  650 

Nature  of,  650 

Substitution,   650 
Interference  proceedings,  645 

Priority,  proof  of,  646 
Invention,   640 
Joint  inventors,  650 


Patents — Continued 
"Letters  patent,"  647 
Licenses,  649 
Life  of,   639 
Marking  an  article,  647 
Model,  making  a,  643 
Novelty,   641 
Official  Gazette,  651 
Official  publication,  651 
Patentee,   640 
Practical   information,  651 
Priority,  proof  of,  646 

Amendments,  645 
Procedure  in  Patent  Office, 

Examiners,  644 

"Office  letters,"  645 

Primary  examiners,  644 
Procedure  to  obtain,  642 

Application,  preparing,  643 

"Caveat,"  642 

Claims,  preparing,  644 

Claims,  tests  of,  645 

Making  model,  643 

Preliminary  search,  643 
Promoters,  652 
Search,  preliminary,  643 
Utility,  641 
Value  of,  651 
What  is  patentable. 

Devices,   641 

Invention,  element  of,  640 

Novelty,  element  of,  641 

Utility,   element  of,  641 
What  is  unpatentable. 

Aggregations,  642 

New  use  of  old  invention,  642 

Principle,  641 

Property  of  matter,  642 

Results,  642 
Who  may  obtain,  640 
Pawnbrokers  (See  "Interest") 
Pawn  or  Pledge,  621 
Payments, 

Collection    of,   by   agents,    202,   203 
Of   debts    (See   "Debts,   enforcing  piiy- 

ment  of") 
Part,    exception    for,    contract   of   sale, 

140 
Presentment  for,  negotiable  instruments, 

234-236 
Rights  of  unpaid  seller  under  contract 

15« 
Penalties,  Crimes,  37 
Pendente  Lite.  Administrator,  507 


862 


INDEX 


Pkmnsvlvania,  Rights  of  Seller  Undis 

A  Conditional  Sale,  ijs 
Per  LapitOf  477 

FntFOIMAMCE, 

Discharge  in  contracts*  84 

^lecific,  28,  104 

Time  to  tender,  iii 
JPiBsoHAL   Piorntnr   (See  "Propertjr*') 
Per  Stirpes,  477 
Petition, 

In  bankruptcy,  600 

In   equity,   28 
Place,  Law  or,  4f 
Plaintiff,  25 

Plate  Glass  Imsukanci,  395 
Pleadings,  25 
Pledge  oe  Paww,  621 

POLICT, 

Fire  insurance,  269 

Life  insurance,  282 
Powek  of  Attorney,  173 

Forms,  768,  769 
Precedent, 

Doctrine  of,  16 

Domination  of,  717 
Preferred  Creditors,  611 
Preferred  Stock,  405 

Cumulatiire,  405 

Dissolution  of  corporation,  406 
Premiums, 

Fire  insurance,  284 

Life  insurance,  271 
Presentment  for  Payment,  Negotiabui 

Instruments,  234-236 
Princifal, 

Bankruptcy  of,  209 

Capacity  to  appoint  agent,  166 

Death     of,     terminati<m     of     agency, 
207 

Definition  of,  16$ 

Duty  to  agent,  182 

Duty  to  third  party,   183 

Illegal     acts,     liable     to     prosecutioii, 
180 

Insanity  of,  208 

Liability  of,  184 

Obediefice  of  agent,  189 

Relation  to  third  party,  204 

Undisclosed,  185 

Who  are  qualified  to  be,  166 
Probate  of  Will  (See  also  "Will") 

Formal  proof,  506 

Notice  of,  506 
Profits,  Partnership,  357 
Profit-Sharing  Agreements,  341 


Promises, 
Consideration  in  a  contract,  52 
Unconditional,    negotiable    instruments, 

215 
Promissory   Notes   (See  "Negotiable  ia^ 

atruments,  promissory  notes") 
Promoters,  Liability  of,   199 
Proof,  Burden  of,  107 
proferty, 

Forms,  807-810 
Chattel  mortgages,  438 

Form,  807 
Conditional  sales,  440 
Deceased  person,  506 
Deed  with  full  covenant, 

Form,  808 
Dying  intestate,  distribution,  475-482 
Eminent  domain,  right  of,  444 
Execution,  attachment,  etc.,  580.  581 
Fixtures,  431 
Inheritance  tax,  507 
Landlord, 

Bankruptcy  of  tenant,  468 

Certain    leases    must    be   in    writing, 
467.  471 
-     Duties  of,  469 

Estate  at  will,  468 

Expediency  of  written  agreement,  471 

Lease,  467 

Liabilities  of,  468 

Notice  of  termination,  467 

Rights  of,  469 
Lease,  (See  also  subhead  "Tenant"  be- 
low) 

Form,  808 

Expediency   of  a  written  agreement, 
467,  471 

Notice  of  termination,  467 

Parties  to,  468 

Rights  of  tenant  and  landlord.  469 
Mortgage,  chattel, 

Form,  807 
Mortgage,  real  esUte, 

Form,  809 
Patents,  trade-marks,  copyrights,  430 
Personal,  433-441 

Absolute  ownership,  436 

Accession,  title  by,  435 

Assessment  of,  694 

Ciioses  in  action,  428 

Conditional  ownership,  436 

Conditional  sales,  440 

Confusion,  435 

Crops,  442 

Definition  of,  430 


INDEX 


863 


Profbrty — Continued 
Personal — Continued 

Derived  title,  434 

Dying  intestate,  475 

Fixtures,  431 

Grant  of,  434 

How  to  dispose  of,  by   will,  497 

Joint  ownership,  43^ 

Kinds  of  ownership,  436 

Lost  property,  title  to,  434 

Original  title,  433 

Owners  in  common,  436 

Partnership  ownership,   436 

Title,  definition  ot,  433 

Transfer  of,  by  gift,  438 

Transfer  of,  by  pledge,  439 

Transfer  of,  by  sale,  438 

Transfer    of,    through    chattel    mort- 
gage, 438 
Real,   44^-451 

Acquired  title,  452 

Assessment  of,   693 

Building  and  loan  mortgages,  463 

"Cestui  que  trust,"  449 

Contingent  remainders,  445 

Conveyance  of,  454 

Curtesy,   447 

Deed  in  escrow,  455 

Deed  of,  should  be  sealed,  455 

Deed,  title  by,  453 

Deeds   of  trust,  463 

Deeds,  restrictions  in,  458 

Definition  of,  431,  442 

Delivery,  457 

Devise,  title  by,  453 

Dower  right,  447 

Easements,   448 

Eminent  domain,  right  of,  444 

"Estates  for  life,"  444 

Estates  in,  444 

"Estates  in  fee  simple,"  444 

Executory  devises,  446 

Executory  devises,  time  limit  to  effect, 
446 

Fixtures,   43 1 

Foreclosure,  method  of,  462 

Freehold   estates,   444 

Homestead,  right  of,  448 

How  to  dispose  of,  by  will,  495 

Inheritance,  title  by,  453 

In  trust,  449 

Joint  tenancies.  449 

Lease,  title  by,  453 

Legal  aspects  of,  443 
,     Legal  mortgages,  460 


Pboferty — Continued 
Real — Continued 
Lts  pendens,  459 
Minerals,  442 
Mortgage,  460 
Mortgageable  property,  461 
Mortgage,  contract  to,  464 
Aiortgage,  form  of,  461 
Mortgages,   kinds  of,   463 
Nature  of,  442 
Perpetuity,  law  of,  447 
Purchase  money  mortgages,  463 
Quitclaim  deed,  455 
Recording  deeds,   457 
Remainders,  445 
Reversions,   445 
Right  to,  444 
Searching  title,   459 
Sundry  mortgages,  464 
Tenancies   in  common,   449 
Title  by  adverse  possession,  452 
Title  by  deed.  453 
Title  by  devise,  453 
Title  by  inheritance,  453 
Title  by  lease,  453 
Title  to,  443 
Torrens  System,  460 
Transfer  of,  454-466 
Trusts,   449 
Vendor's  lien,  461 
Vested    and    contingent    remainders, 

445 
Warranty   deed,   455.   456 
Warranty  deed,  essential  elements  of, 

456 
Warranty  deed,    form   of,   456 
Waste,  445 
Real       and        personal,       distinguished, 

430 
Real   and    personal,   questionable    cases, 

431 
Rights, 

Bailments,  624 

Classified,  428 

Contingent,  428 

Origin  of,  427 

Personal  property,  427 

Real  property,  427 

Vested  rights,  428 

When  there  is  a   will,   495.  497 

When  there  is  no  will,  431 
Rights   of    husband    and    wife    in    each 

other's,     540     (See     also     "Curtesy" 

"Dower,"  "Husband  and  wife") 


S64 


INDEX 


PmorEMTY — Continmgd 
Tenant,  467 

Bankruptcy  of,  468 

Certain    leases   must   1ms   in   writing, 

467.  47* 
Duties  of,  469 
Esute  at  will,  468 
Expediency   of  a  written  agreement, 

471 

Lease,  467 
Liabilities  of,   468 
Notice  of  termination  of  lease,  467 
Rights  of,  469 
Transfer  of  personal, 
Cliattel  mortgage,  438 
Conditional  sales,  440 
Gift,  438 
Pledge,  439 
Sale,  438 
Transfer  of  real,  454-466 
Wills  and   inheritance,   475    (See   also 
"Will") 
PaopRiETOKs  or  Snors,  Duties  or,  626 
pKOTEST  roK  Non-Paymxj(t»  239 
Certificate  of. 
Form,  780 
PioxY,   173.  41 S.  771 
Form.  770,  771 
Revocation,  771 
Form,  772 
Public  Corpohations,  377 
Public  Officials,  Contbacts  to  Bbibb, 

47 
Public    Policy,    Contracts    Opposed   to. 

Void,   134 
PuBCHAss  Money  Mobtgagbs,  463 


QUASI-CONTBACTS,    64 

Quitclaim  Deld,  455 

QUOBUM, 

Directors'  meetings,  420 
Stockholders'  meetings,  41  j 

R 

RATmcATtoN,  Acts  or  Acbnt,  176 
Real  Pboperty  (See  "Property") 
Recall  or  Judges,  20 
Receipts  and  Releases,  570 
RzcEivER.  Rights  and  Duties,  607 
RzcEivEBSiiip,  598 
Referee,  in  Bankbuptcy,  604 
JUrsBEMCBS,  310 


Rbcister  or  Copyrights.  678 
Reimbursement  Ricutb,  or  SUBsnr,  $63 
Release,  570 

Form,  811 
Remainders,  445 

Contingent,    44$ 

Vested,   445 
Remedial  Law,  aa 
Rent  Insurance,  297 
Reports, 

Accident,  to  Compensation  CommisMon, 

$S4 

Court,   16 

Citations,  how  to  find,  823 
Representative  (See  "Agency,  agent") 
Residuary  Clause,  499 
Resignation.  Directors,  804 

Forms,  804,  805 
Resolutions, 

Certified,  designating  bank. 

Form,  80a 
Directors  of  corporation. 

Form,  801 
Restrictive  Indobsxmbmt,  aaj    ' 
Rbvbbbion.   445 

Risk,  Doctbine  or  Assumption  or,  325 
Roman  Law,  18 
Root,  Elihu,  Excebpt  prom  Address,  31, 

7»9 

s 

Sailors,  Lipe  Insubancb,  287 

Salabies,    Distinguished    pbom    Wacbs» 

320 
Sales,  121-161 

Forms,  762-766 
An  executed  contract,  121 
Auction, 

Compliance  with  conditions,    159 
Duties  of  auctioneer,  160 
Regulations  for,   159 
Barter,    121 
Bill  of,  personal. 

Forms,  765 
Conditional, 
Form,  763 
Acknowledgment,  requirement  of,  135 
Affidavits,  requirement  of,  133,  134 
Agreement  in  writing,    133 

Form,   763 
Part  payment,    ijj 
Possession,  133 
Protection     against     destruction     of 

property.   136 
Protection  against  lien,   135 


INDEX 


86s 


Sales — Continued 
Conditional — Continued 

Rights  of  seller  in  Illinois  and  Penn- 
sylvania, 135 

State  laws,   134 

States      requiring      acknowledgment, 
13s 

States  requiring  affidavits,  134,  135 
Consideration, .  1 25 
Contract  of  warranty. 

Form,   766 
Contract  to  sell, 

Agreement,  123 

By  letters. 
Form,  763 

Consideration,  125 

Definition  of,  121 

Destruction  of  subject  matter,    126 

Executory  contract,    121 

Memorandum  of  sale,   139 
Form,    762 

Must  be  legal,  127 

Nature  of  subject  matter,   125 

Necessary    elements    as    in    contracts, 
123 

Sales  to  arrive,  127 

Selection    necessary    to   delivery,    129 

Statute     of     Frauds     (See     subhead 
"Statute  of  Frauds,"  below) 

Time    for   title   to  pass,    130 

To  incompetent  persons,   124 

Undivided     interest    in    goods,     126, 
130 

Uniform   Sales  Act,    121 
Definition  of,    121 
Delivery,    121.    129,   132 

Passing  title,   129 

Without  delivery,  132 
Destruction  of  article,  126 
Enforcing  payment,    57S-583 
Incompetent  persons,   124 
Memorandum  of,   139 

Form,   762 
Ordering   goods    from   catalogue,    149 
Ordering   goods    from    sample,    149 
Passing  title. 

Conditional  sales,   133 

Delivery,    129 

Requirement  of  affidavit,   conditional 
sales,    1 34 

Rights  in   Illinois  and   Pennsylvania, 
conditional  sales,   135 

Sales  without  delivery,   132 

Selection  necessary  to,   129 
Privilege   of  returning  goods,   126 


Sales — Continued 
Remedies  for  breach  of  contract. 
Buyer  insolvent,  152 
Resale  of  goods,  151 
Rescission  of  sale,  effect  of,   156 
Rights  of  buyer,   154 
Rights  of  buyer  under  Uniform  Sales 

Act,   1 55 
Rights  of  unpaid  seller,   151 
Stoppage  in  transitu,  153 
Term    of    credit    expired,    goods    in 
possession  of  seller,  151 
Rule    as    to    work    or    services    where 
Uniform   Sales  Act  is   not   in   force, 

M3 
Statute  of  Frauds, 
As  to  contracts  to  sell,    138 
Description,  138 
Exception  for  amounts  below  specified 

value,   141 
Exception  for  part  delivery,    141 
Exception  for  part  payment,   140 
Exception   for   work  or  services,    142 
What  the  memorandum  must  consist 

of,   139 
When  contract  of  sale  must  be  writ- 
ten,   139 
Stolen   goods,    148 
Uniform   Sales  Act,   121 
Warranties, 

Conditions  precedent,  145 
Conditions  subsequent,  146 
Definition,  144 
Express,   146 
Implied,    147 
Special   situations,    148 
What  constitutes   necessaries,    124 
When  title   to  goods  passes,   rules   for 

determining,    130,    131 
Without  delivery,  fraud,   132 
Sample,  Obdering  Goods  from,  149 
Seal,  « 

Contracts  under,  57,  58 
Corporate,  423 
Use  of,  748 

Charter  power  to  sign  without,  386 
Wills,   488 
Secord,  Jerome,   Excerpt  from  Address, 

723 
Security  for  Debt,  Enforcing  Payment, 

575-583 
Selleb,  Rights  of.  Breach  of  Contract, 

151-154 
Separation,  Husband  and  Wife,  542 
Servants,  Acting  as  Agents,    179 


866 


INDEX 


SBrrLBicKiTT  or  Suit  (Sec  "Arliitnitioii'*) 

SSVIIAL    CONTIACT.    IIS'IIJ 

Shaiu  (See  "Capital  stock") 
SHirMBNTS,  STorrAGK  in  transitu,  133 

SiGNATUKK, 

Agent's, 

Form,  745 
Corporatioii's, 

Fonns,  745,  747 
Coipormtion's,  to  letteri. 
Form,  745 
Silent  Pabtneks,  345 

Foniir  fo6 
Societies,  Affointment  or  Agbmts,  199 
Soloiees,  Life  Insukamce.  287 
Sfeciai.  Agents,  169 

SpECIAI.    iNDOBSEliENT.    323 

SrsciFic  PsaroEMANCE,  28,  104 
Statement,  Cobpoeatb,  Tbeasubeb's  Am- 
havit. 

Form,  806 
Statute  or  Fbaudb, 

Contracts,  provisions  of,  59 
Contracts  to  sell,    138 
Description,   138 
Exception  for  amounts  below  specilied 

value,    141 
Exception  for  part  delivery,   141 
Exception  for  part  payment.   140 
Exception  for  work  or  services,    142 
Form  of  memorandum  required,   59, 

138,  139 
When  contract  must  be  written,  139 
Statute  or  Limitations,  245 
As  to  debts,  570 
In  contract,  effect  of,  99 
Stati;toby  Abbitbation,  70a 
Statutoby  Law,  13 

Stock    (See    also    "Corporations,    stock," 
"Capital  stock") 
Contracts    for    buving    and    setlinf    on 

margin,  46 
Floating,   fire  insurance,  273 
Stock  Cebtificate, 

Form,   789 
Stock  Cobpobation  Law,  404 
Stockholoebs, 
Incorporators,  4to 
Liabilities    of,   412 
Meetings,  413 

Minutes,  799,  800 

Form,  800 

Motions,  801 

FonOi  801 


Stockholoebs — Co  ntinmtd 
Mettings— Continued 

Proxies,  173.  415,  77o,  77« 

forms,  770,  771 
Quorum,  413 
Revocation  of  proxy,  770 

Form,  770 
Special,  minutea  of. 

Form,  799 
Voting,  414 
Powers  of,  411 
Rights  of,  410 

Holders  of  common  stock,  410 
"Stockholders  of  record,"  410 
Voting  trusts,  414 
What  constitutes,   410 
Writ  of  mandamus,   411 
Stolen  Goora,  Sale  or,  148 
Stbike  Insubance,  297 

StBIKES,    ErFECT   ON    CONTBACTS.    89 

Subrogation,  Rights  of  Subety,  563 
SuBscBiPTioN  List, 

Form,  788 
SuiTa, 
Advisability  of  litigation,  32 
Arbitration,    701 
At  law,  23,  24 
Breach  of  contract,  92 
Statute  of  Limitations,  99 
Time  to  bring,  98 
Collection  of  debts,  575-583 
Contesting  a  will,  529 
Contracts,  92-110 
Assigned.   80,    103 
Joint,  103 
Divorce,  542 
Evidence,  io6-iio 
Admissions,   108 
Burden  of  proof,  107 
Parol,  107 

Transactions    with    party    later    dt* 
ceased,  109 
In  chancery,  23 
In  equity,  23,  24 
Summons,  Sebvice  of,  25 
sufebintenoent  as  acent.  169 

SUFEBINTENDENT    OF    PUBLIC    DoCUMgim, 

651 
SUBKTYSHIF,   557566 

Acceptance  of,  560 
Agreements  of,  557 
Bond,  558 
Consideration,    560 
Contract  of,   558 
Written,    558 


INDEX 


867 


SUBBTYSRir— Coflh'flMtfd 

Death  of  obligor,  565 
Debts,  557 
Defaults.  557 
Defenses  of  surety,  s^ 
Definition   of,   557 
Delivery,   560 
Discharge,  564 
Guarantor,   559 
Guaranty,  contract  of,  557 
Insanity  of  obligor,   563 
Miscarriage,  557 
Nature  of,  558 
Obligee,  557 
Obligor,   565 

Death  of,  565 

Insanity  of,  563 
Parties  to,   559 
Subrogation,   563 
Surety,  rights  of,  56a 

Contribution,  563 

Cosureties,  563 

Defenses,  562 

Discharge,  564 

Extension  of  time,  564 

Notice  of  failure  to  pay,  562 

Reimbursement,   563 

Subrogation,  563 


Taft,  Judge,  Opinion  of,  31,  657 
Taxation, 
Assessment  of  personal  property,  694 

Evading  taxes,  695 

Optional  reports,  694 

Rate,   695 
Assessment  of  real  property.   693 

Complaints  and  warrants.  694 

Deductions,  693 

State  Board  of  Equalization,   693 
Corporations,   696 
Direct.   689 
Double,  691 
Extent  of,  690 
Federal  government,  687 
Federal  income  tax,  697 
Indirect,  689 
Inheritance  taxes,  508 
Laying  taxes. 

Difference  in  rates,  690 

Division  of  persons  and  property  for, 
690 

Extent  of,  690 

Federal  government,  687 

Methods  of,  689 


Taxation — Contin  ued 

Laying  Taxes — Continued 

State   legislatures.  687 

Who  has  right,  687 
Payment  of  taxes,  696 
Purpose  of,  688 

Banking  systems,  688 

Currency   systems,   688 

Expenses.  688 

Improvements,  688 

Postal  system,  688 
Sixteenth  Amendment,  689 
State  legislatures.  687 
What  taxes  are  unconstitutional,  689 
Taxes  (See  "Taxation") 
Telephone    and    Telegraph    Companies, 

634 
Tenancies. 

In  common,  449 

Joint,  449 
Tenant  (See  "Property,  tenant") 
Tender  (See  also  "Contracts") 

Acceptance  of,  113 

Extent  and  kind  of,   112 

Payment  or  performance,   tit-113 
Testament  (See  "Will") 
Testator  (See  "Will") 
Testimonium  Clause,  747 

Form,  747 
Third  Pabty, 

Establishing   partnership   liabilities,    339 

Liability    of    employer    for    injuries    of, 

335 

Liability  of  partnership  to,  342 

Relation  to  agent,  202 

Relation  to   principal.   204 
Time,   Certain    Future,   Negotiable  In- 

stbuments,  21 6 
Title  (See  also  "Property") 

Defects  of,  negotiable  instruments,  227 

Insurance,  295 

Personal  property.  433-437 

Real  property,  443,  452,  453 
Title  Insubance,  295 
ToBNAoo  Insubance,  297 
ToBBENs  System,  460 
Tbade  Acceptances,  251 

Form,  780 
Tbade-mabks,  654-665 

Amendments,  663 

Appeals,  663 

Assignments,  664 

Attached  to  fraudulent  goods,  effect  of, 
655 

Certificate  of  registration,  663 


868 


INDEX 


Tkaoe- MARKS — Continued 
Common   law,  654 
Common  law  right,  658 
Description  of,  654 
Essential  features,  655 

Adoption,   655 

Articles  must  not  be  fraudulent,  655 

Distinctive,  655 

Lawful  business,  65s 

Priority  in  use,  655,  658 
Federal  Trade-mark  Law.  660 
Foreign  registration,  664 
Function  of,  654 
Good-will  of  business,  658 
Not  assignable,  658 
Opposition  to  registration,  662 
Publication  of,  663 
Registering,    654 
Registration  of. 

Amendments,  rejections,  and  appeals. 

Certificate   of,   663 

Federal   Trade-mark   Law,  660 

Foreign,  664 

Official  Gazette,  662 

Opposition   to.   662 

Procedure  for,  661 

Ten-year  clause,  660 

What  will  bar,  662 

Who  may  register,  661 
Rejections,  663 

Summary  of  common  law  right,  658 
Ten-year  clause,  661 
What  can  be  used. 

Arbitrary  words,  657 

Certain  pictures,  insignia,  etc.,  657 

Non-descriptive,  657 
What  may  not  be  used. 

Descriptive  names,  6s6 

Geographical  names,  656 
-  Letters,  numbers,  and  marks,  descrip- 
tive, 656 

Misleading  names,  656 

Patented  inventions,   656 

Personal  names,  656 
What  will  bar  registration,  66a 
Who  may  register,  661 
Tbaoe-names, 

Corporate   names,   668 

Definition,  667 

Geographical  names.  669 

Personal  names,  668 

Secondary   meaning,   667 

Unfair  competition,  666  (See  also  '*Un- 

fair  competition") 


Trade.  Restraint  of.  Agreements  in.  46 
Transfer  (See  also  "Property."  "Negoti- 
able instruments,  negotiation") 
Capital  stock,  407,  791 
Form,  790 
Transfer  Tax,  508 
Transit,  Stopping  Goods  in,  153 
Trbasurer,     Affidavit     to     CosrotATE 
Statsmekt,  806 
Form,  806 
Trkasury  Stock,  407 
Trial, 
At  law,  26 
Motion  for  new,  30 
Trust, 

Deeds  of,  463,  504 
Real  property  held  in,  449 
Voting,  414 
Trustee  (5cc  "Will,"  "Bankruptcy") 

u 

Ultra  vires,  388 

Unauthorized    Acts,     Ratification    op 

if6 
Undui  Influemce, 

Contesting  will  on  account  of,  539 
Effect  of,  on  contract,  73 
Unfair  Competition, 

Deceptive  advertising,  671 

Definition,    666 

Geographical  names,  use  of,  669 

Imitation  of  package,  670 

Names   of  businesses   protected  against 

imitation,  671 
Personal  and  corporate  names,  668 
Price  cutting,  672 
Refilled  packages,  671 
Trade-names,    imitation    of,    667    (See 
also  "1  rade-names") 
Uniform  Bills  of  Lading  Act,  113.  632 
Uniform  Negotiable  Instruments  Law, 

214 
Uniform  Sales  Act,  121,  122 

States  adopted  by,  122 
Uniform  Stock  Transfer  Act,  407 
Unilateral  Contract, 

Form,  758 
Unincorporated  Clubs,  Apfointubnt  of 

Agents,  166 
Usury,  585 


Vance,    Dian.    Excerpt    from    "Justice 

AND  THE  Poor."  718 
Verbal  Agreements,  51,  57 


INDEX 


869 


Vested  Property  Rights,  428 
Vested  Remainders,  445 
Vocation,  Law  as  a,  731 
Voidable  Contracts,  65 
Void  Contracts,   65 

Voting  at  Stockholders'  Meetings,  414 
Voting  Trusts,  414 
Voucher  Checks, 
Form,  775 

w 

Wages,  305,  319 
Child's,  321,  55 1 
Distinction  from  salary,  320 
Overtime,  320 
Waltuam,  American,  Watch  Co.,  069 
Warp, 
Guardian,  551 
Personal,  551 
Property,   552 
War,  Effect  on  Contracts,  88 
Warehouse  Lien,  575  1 

War  Life  Insurance,  287 
Warrant,  35 
Warranty, 

Conditions  precedent,    145 

Conditions  subsequent,   146 

Deed,  455 

Definition,   144 

Express,    146 

Fire  insurance  policy,  275 

Implied,    147 

Indorser    of    a    negotiable    instrument, 

222 
Rights  of  buyer,  155 

Special  situations,   148 
Trade-names,  ordering  goods  by,  149 
Waterman,  L.  E.,  Co.,  668 
Widow,   Dower  Rights,   Settlement  of 

Estate,   479 
Wife  (See  "Husband  and  wife") 
Will,  475-531 
Form,  812 
Accounts,  intermediate  and  final,  521 
Compulsory,  521 
Kinds  of,   521 
Obligation  account,  521 
Preparing,  522 

Voluntary  final  accounting,  522 
Administrator  cum  testamento  annexe, 

508 
Administrator  de  bonis  non,  511 
Administrator  of  estate   (See  also  sub- 
head "Executor"  below) 
Appointment  of,  508,  512 
Duties  of,  509 


Will — Continued 

Administrator  pendente  lite,  507 

Advancements  to  children.  479 

Advice  as  to  making.  487 

"Ancillary  letters,"  507 

Attestation  clause,  488 

Beneficiary,  death  of,  493 

Changing,  501 

Charity,  right  to  leave  property  to,  486 

Child, 

Accumulation    of    proceeds    of    real 
property  for,  496 

Born  after  making  of  will,  486 

Half-blood.  479,   482 

Residence  of,  482 
Codicil, 

Form  of,   501 

Making,  501 

Revoking,   502 
Contesting,  529 

County  Clerk,  deposit  of  will  with,  499 
Death  of  beneficiary,  493 
Debts,  payment  of,  486 
Definition,  475 
Destruction   of,    502 
Disposition     of    property,     other    ways, 

504 

Duties  of  executors  and  administrators. 
Advertising  for  claims,  513 
Authority  of  executor,   515 
Caring  for  funds,  514 
Inventory,  512 

Letters  of  administration,  512 
Letters   testamentary,    512 
Paying  legacies,  514 
Procedure,  512 

Dying  intestate. 

Administration  of  property,  483 
Common   law,   rules   of,   475 
Disposition  of  personal  property,  480 
Disposition  of  real  property,  476 
"Law  of  primogeniture,"  475 
New   York   State   law   regarding  dis- 
tribution, 476-482 

Executor   (See  also  subhead  "Adminis- 
trator of  estate"  above) 
Not  required  to  give  bond,  507 
Real  estate,  power  to  sell,  490 
Trust    company    as,    advantages    of, 

483,  491 
Trustee,  executor  may  be  authorized 

to  act  as,  490 
What  powers  to  give,  490 
Forms  of,  487-489 
Gifts,  in  view  of  death,  505 


870 


INDEX 


Will — Continned 

Half-brothers   or   aittera.   479.   4»a 
Holograiiluc,  490 
How  to  make,  485 

HuaUnd.  rights  of,  where  00  will,  Af% 
4«a 

Inheritance  tax,  $tA 
Investments,  of  trustees,  491 
Legatee,  residuary,  499 
Life  tenant,  518 

Life   tenant   and    remainderman,    ques- 
tions between. 
Dividends,  cash,  518 
Dividends,  stock,  518 
Expenditures  on  real  estate,  519 
Reinvestments,  profits  on,  518 
Rights,   conflicting,   Itow   they   arise 

518 
Subscription  rights,  519 
Unusual  cash  dividends,  518 
Mental  capacity  to  make,  485 
New,  after  marriage,  486 
Nuncupative,  490 
Personal  property, 
Debts,   payment   of,   498 
Disposition  of,  497 
ilisposition  of,  when  no  will.  480 
Leaving  in  trust,  498 
Legacies,  498 

Residuary  clause  and  legatee,  499 
Probate,  notice  of,  506 
Real  property. 
Disposition  of,  dying  intestate,  476 
Form  for  disposition  of,  495 
How  to  dispose  of,  495 
Leaving    property    in    trust    for    an- 
other, 496 
Proceeds  of,  for  child,  496 
Residuary  clause  and  legatee,  499 
Trusts,  form  for  creating,  496 
Register  of  Deeds,  deposit  of  will  with. 

499 
Remainderman,    518 
Residuary  clause,  uses  <^,  499 
Restrictions  on  power  of  making,  485 
Revoking,  502 

Rigiits  in  property  left  by  wUI.  %M 
A^ion  to  contest,  529 
Personal  property.  524,  528 
Real  property.  528 
Rights  in  property  where  no  will    514 
Husband  or  wife,  525 
Real  property,  524 
Undue  influence,  529 
What  creditors  must  do,  526 


Will— CotiitNMfftf 
Settlement  of  an  esute. 
Administrator,   appointment   of,    co8 

Administrator  cum  testamtnia  annexo. 
sot 

Administrator  de  bonis  non,  511 
Administrator  pendente  lite,  507 
"Ancillary  letters,"  $07 
Contesting  will,  507 
InheriUnce  tax,   508 
Notice  of  probate,  506 
Stocks  and  bonds,  510 
When  deceased  left  no  will,  508 
When  deceased  left  will,  506 
When   there   is   property   in   several 
•t»tes,  509 

Without  administrators,  sio 
Witnesses,  examination  of,  506 

Signature.  488 

"Sound  and  disposing  mind,"  48s 

Sututes,   form  of,  493 

Stock  dividends,  prevailing  rules  as  to 

Surrogate,  deposit  of  wiU  with,  499 
Title  to  property,  433 

Transfer  of  real  property  during  life- 
time,  479 

Trust  companies  as  executors,  483.  401 
Trustees, 
Executors  as.  490 
Investments  of,  491 
Majority  may  act,  491 
Trust    companies    in    preference    to 

private  persons,  491 
Trust  estates.  492 
When  more  than  one,  491 
Trusts, 

Form  for  creating.  496 
Personal  property,  498 
Real  property,   496 
Wisdom  of  making,  483 
WoMKN.    MAtaiBD    (See   also    "Husband 
and  Wife") 
Parties  to  contracts,  44 

WotKMtM's    COMI-ENSATIOM    ACTi,    33© 

Arbitration,  333  ^ 

Compensation   Commission.  334 
Employee  cannot  give  up  right.  335 
Employer's  defenses  taken  away,  334 
Injuries,  compensation  for,  331 
Report    of   accidents    to    Compensation 

Commission,  334 
Schedule  of  compensation,  33a 
Third  persons,  335 
Who  are  entitled  to  benefits  of,  ^3^ 


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C7611  Business  Law 

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NOV    61930 


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END  OF 
TITLE 


